The Fed is putting together a Symposium. Fundamental analysis for 22.08.2014

22.08.2014
Despite yesterday's positive statistics from the United States, the Eurodollar still mustered the strength to start a correction. The thing is that Friday night, the annual symposium of the Fed, in which Janet Yellen (15:00 GMT) and ECB chief Mario Draghi (19:30 GMT) are expected to speak. Since the last FOMC meeting minutes are more "militant" in relation to an early rate hike, the unfolded position of Yellen will be crucial.

I will remind you that speaking to relevant committees of Congress last month, Yellen carefully balanced between the possibility of an early rate hike, and its conservation. Putting across that everything will depend on the situation in the economy. However, for the past six months data on the number of jobs steadily come out above 200k, which allows the Fed officials to at least look at the possibility of the transfer of monetary policy to normal.

Another interesting thing is that the assessment of the current situation on the labour market is still highly subjective. Do recall how the decision about the early wrap up of QE3 happened - more than six months have passed since the words of Ben Bernanke (predecessor of Janet Yellen) of this possibility to its practical implementation. And, despite the clear progress on jobs at the time, the Fed persistently reported that there was "fragility" in the whole situation in general.

Now all recent hints of a possible rate hike from the Fed's walls have an extremely weak reaction on the markets. Therefore, either the words Yellen are simply not taken seriously, or the market "until recently" hopes for a reprieve from the Federal Reserve: the most recent rise in the Dow - a clear reflection of these expectations. Accordingly, if today Yellen continues the offensive and once again talks about the possibility of an early rate hike, there could be "universal enlightenment."

However, Mario Draghi’s comments are expected to be of a completely different kind. Given all the problems of the euro zone, there is clearly no talk about raising rates. A key role in determining the direction of the Eurodollar will be Draghi's remarks on the possibility of European QE. All the latest statistics were extremely weak, the recession is inevitably coming back and some stimulating activities are desperately needed, or this fall will drag on.




Overall, if we compare the possible directions of Yellen’s and Draghi’s speeches, the prospects for the Eurodollar remain bearish. It is also worth considering that the market impact Yellen words will have are likely to be significantly higher. In other words, whatever Draghi says on further action of the ECB, without Yellen being straightforward on growth of rates the market is unlikely to show a significant rally. Well, because there is a risk of a longer correction, I have already closed a share of the profits on my shorts.
 
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