DXY/ USD - FED YELLEN, MESTER & EVANS SPEECH HIGHLIGHTS
USD has traded relatively flat following the slew of Fed speakers in the past 8hrs - despite Dec Fed Funds steepening aggressively from <50% implied probability to 56% probability of a hike. Perhaps more interestingly though, is that a fed hike has never happened in the past unless fed funds have priced 50% and recently we have traded below this figure which makes the December hike somewhat less than certain.
From here USD positioning looks tight/ flat, there isnt much directional bias imo given one hike this year is unlikely to drive USD higher (which is the most likely outcome) - thus bets against the fed is where any real alpha will lie (given a fed hike in dec is unlikely to give the USD a boost). We are well behind this years expectations and i think this may even weigh on the December likelihood. Has the Fed lost their trigger finger is perhaps the most important question, closely followed by trumps ability to make a valid run for the presidency, where both have risks assymetrically skewed to the downside.. thus imo its fair to say the USD future is fairly bleak.
Equities remain stubborn on the Feds accomodation, and now the USDJPY 100 target has been hit imo EUR$ and GBP$ longs on dips make sense; particularly into 1.295 (a continued tactical trade) where the brexit political uncertainty i feel is massively overpriced already (along with future BOE easing limited here whilst data holds up) - hence taking advantage of these "shock dips" for 100-200pips has/ is paying wel. Whilst he ECB/ FED divergence driver is alot flatter than was anticipated earlier in the year as the fed becomes structurally more dovish and the ECB more hawkish.
Fed Yellen:
Fed's Yellen: U.S. Banking System is Well Capitalized
Fed's Yellen: 'Loan Growth is Picking Up, and Problem Loans' are Down
Fed's Yellen: Largest, Most Complex U.S. Banks Will See 'Significant Aggregate Increase in Capital Requirements'
Fed's Yellen: Fed Will Raise Big Bank Capital Requirements Through Stress Test Changes
Yellen: Fed Will Continue to Work to Tailor Oversight to Riskiness of Banks
Yellen Calls for Regulatory Relief for Small Banks
Yellen Backs Small Bank Exemption From Volcker Rule
Yellen Testimony Rehashes Previous Regulatory Positions
Yellen Calls for Regulatory Relief for Small Banks
Yellen: 'No Fixed Timetable' For Raising Rates
Yellen: Congress Could Allow Fed to Purchase Equities as Possible Future Monetary Policy Tool
Yellen: Have 'Never Been Pressured' By Obama Administration on Monetary Policy
Yellen: 'Very Much Hope We Can See Greater Diversity' on FOMC
Yellen: Labor Force Participation Rate Dropping Due to 'Aging of the Population
Yellen: 2% Inflation Target 'Not a Ceiling'
Fed Mester:
-Wanted September rate hike due to Fed's progress on jobs and inflation mandate and expectation of further progress
-Not raising rates risks steeper policy path later on, which could cause recession
-Raising rates now will prolong US economic expansion
-Policymakers should not discard past, think this time 'completely different'
-Says fundamentals of US economy remain sound
US economy has shown it is resilient to shocks
-Says she expects US economic growth at or above 2 pct the next two years, inflation to return to 2 pct target
-Says expects weak business investment to pick up with further US economic growth
-Says labor market at full employment, expects it to continue to tighten
From here USD positioning looks tight/ flat, there isnt much directional bias imo given one hike this year is unlikely to drive USD higher (which is the most likely outcome) - thus bets against the fed is where any real alpha will lie (given a fed hike in dec is unlikely to give the USD a boost). We are well behind this years expectations and i think this may even weigh on the December likelihood. Has the Fed lost their trigger finger is perhaps the most important question, closely followed by trumps ability to make a valid run for the presidency, where both have risks assymetrically skewed to the downside.. thus imo its fair to say the USD future is fairly bleak.
Equities remain stubborn on the Feds accomodation, and now the USDJPY 100 target has been hit imo EUR$ and GBP$ longs on dips make sense; particularly into 1.295 (a continued tactical trade) where the brexit political uncertainty i feel is massively overpriced already (along with future BOE easing limited here whilst data holds up) - hence taking advantage of these "shock dips" for 100-200pips has/ is paying wel. Whilst he ECB/ FED divergence driver is alot flatter than was anticipated earlier in the year as the fed becomes structurally more dovish and the ECB more hawkish.
Fed Yellen:
Fed's Yellen: U.S. Banking System is Well Capitalized
Fed's Yellen: 'Loan Growth is Picking Up, and Problem Loans' are Down
Fed's Yellen: Largest, Most Complex U.S. Banks Will See 'Significant Aggregate Increase in Capital Requirements'
Fed's Yellen: Fed Will Raise Big Bank Capital Requirements Through Stress Test Changes
Yellen: Fed Will Continue to Work to Tailor Oversight to Riskiness of Banks
Yellen Calls for Regulatory Relief for Small Banks
Yellen Backs Small Bank Exemption From Volcker Rule
Yellen Testimony Rehashes Previous Regulatory Positions
Yellen Calls for Regulatory Relief for Small Banks
Yellen: 'No Fixed Timetable' For Raising Rates
Yellen: Congress Could Allow Fed to Purchase Equities as Possible Future Monetary Policy Tool
Yellen: Have 'Never Been Pressured' By Obama Administration on Monetary Policy
Yellen: 'Very Much Hope We Can See Greater Diversity' on FOMC
Yellen: Labor Force Participation Rate Dropping Due to 'Aging of the Population
Yellen: 2% Inflation Target 'Not a Ceiling'
Fed Mester:
-Wanted September rate hike due to Fed's progress on jobs and inflation mandate and expectation of further progress
-Not raising rates risks steeper policy path later on, which could cause recession
-Raising rates now will prolong US economic expansion
-Policymakers should not discard past, think this time 'completely different'
-Says fundamentals of US economy remain sound
US economy has shown it is resilient to shocks
-Says she expects US economic growth at or above 2 pct the next two years, inflation to return to 2 pct target
-Says expects weak business investment to pick up with further US economic growth
-Says labor market at full employment, expects it to continue to tighten
Fed's Evans: Low Real Interest Rates Could Be With Us for Some Time DJ News
Evans: Low Real Interest Rates Could Persist Even After Policy Rates Return to Neutral
Evans: Real Interest Rates Lower Than Before the Financial Crisis
Evans: Monetary Policy Not as Accommodative as It Might Seem
Evans: Risk of Overshooting 2% Inflation Target Is Lower Than Historical Comparisons
Evans: Community Banks Need to Adjust to New Normal
Evans Warns on Risky 'Reach for Yield' Behavior
Evans: Monetary Policy Makers Have Less Room to Navigate Future Shocks D
Fed's Evans Says Low Real Interest Rates Could Be With Us for Some Time
Fed's Evans: Low Real Interest Rates Could Be With Us for Some Time
Evans: Low Real Interest Rates Could Persist Even After Policy Rates Return to Neutral
Evans: Monetary Policy Not as Accommodative as It Might Seem
Evans: Real Interest Rates Lower Than Before the Financial Crisis
Evans: Community Banks Need to Adjust to New Normal
Evans: Risk of Overshooting 2% Inflation Target Is Lower Than Historical Comparisons
Evans Warns on Risky 'Reach for Yield' Behavior
Evans: Monetary Policy Makers Have Less Room to Navigate Future Shocks
Fed's Evans Says Low Rates Could Remain for Some Time