Article Highlights

  • Yellen: Fed is unimpressed with growth, inflation, and employment growth
  • Yellen: high degree of accommodation remains appropriate
  • Yellen: rate hike would occur sooner if labor conditions improve
  • US retail sales: 0.2% vs. 0.6% expected and 0.5% previous
  • US core retail sales 0.4% vs. 0.5% expected and 0.4% previous
  • US NY manufacturing PMI clocks in an index reading of 25.6 vs. 17.2 expected and 19.3 previous
  • Rioforte news weighs on EUR
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What weak reports? The low-yielding Greenback gained against most of its counterparts yesterday despite a noncommittal speech by Janet Yellen and a weak U.S. retail sales report.

Yesterday Janet Yellen was unsurprisingly cautious in her speech, saying that high degree of accommodation remains appropriate and that there’s room for more wage growth before we see improvements in inflation numbers. Market players mostly shrugged these off though, and focused instead on Yellen’s remarks about a possible rate hike happening sooner than expected if labor conditions improve.

USD/JPY inched 12 pips higher to 101.68 throughout the session while USD/CHF jumped by 34 pips to .8960. The dollar strength extended to the comdolls, as AUD/USD stayed below .9390 after an initial upward spike. NZD/USD also slipped by 34 pips to .8770 while USD/CAD jumped by 31 pips to 1.0757. GBP/USD was unsurprisingly resilient with only a 14-pip hit at 1.7145 as the pound was still supported by a strong UK inflation reading printed during the early London session.

The euro wasn’t as lucky. Just before Yellen’s speech rumors circulated that Rioforte, the main unit of Portugal’s Espirito Santo group, is preparing to file for creditor protection. Word around the hood is that it can’t pay Portugal Telecom its debt worth 897 million EUR. This is bad news for Banco Espirito Santo (BES) as Rioforte holds a 49% stake in the Espirito Santo Financial Group, BES’ largest shareholder. If you recall, BES is Portugal’s second largest bank.

EUR/USD dropped by 52 pips to 1.3567 throughout the session while EUR/JPY sustained a 35-pip drop to 137.96. Last but definitely not the least, EUR/GBP fell to the .7900 region, its weakest since September 2012. Yikes!

Will the high-yielding currencies gain back some pips today or will more dollar bulls jump in? New Zealand’s weaker-than-expected CPI released a few hours earlier is already weighing the Kiwi down but we still have China’s GDP, industrial production, fixed asset investments, and retail sales reports to watch out for at 2:00 am GMT. Market players are generally expecting upbeat (if not steady) numbers from these reports but watch out in case there are downside surprises!

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