The Federal Reserve nominee Janet Yellen sent ripples through the markets after she said that ongoing stimulus is needed because the US economy was performing less than its potential. This sent the dollar to a weekly low and declined .5 percent on the session.
“Yellen’s remarks are definitely dovish and the weakness in the U.S. dollar reflects that,” mentioned Joseph Capurso, a currency strategist at Commonwealth Bank of Australia. Yellen’s remarks come prior to a hearing in front of the Senate Banking Committee tomorrow, and it greatly reduces the potential for a taper in December.
In a prepared testimony, The chairwomen nominee said “a strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases.” Unfortunately, over a three trillion in quantitative easing over the last five years still allows the economy to perform “far short of its potential.”
So, infinite QE is needed in the eyes of a Keynesian – but, I digress.
The euro gained against the greenback, and is looking to add another leg higher as long as sentiment remains suspect within the dollar bulls.
Price action is being held under the daily 50 EMA with the 20 EMA slightly above acting as double resistance. The eurodollar is still neutral considering the RSI at 41, even given the quick snap over the last few sessions. An intraday pullback to 1.343 could be a possibility if the market decides to fade the euro rally.
However, expect the dollar to react to Yellen’s comments tomorrow at the Committee hearing. This could provide a move up in the eurodollar and overtake the 50, and potentially the 20, EMA.