This week is another big one for the U.S. Dollar, as the currency remains pinned-down near 10-month lows. The primary drivers for this week will likely come from Fed Chair Janet Yellen’s two-day testimony in front of Congress, set to take place on Wednesday and Thursday. During this twice-annual Humphrey Hawkins testimony, Chair Yellen will brief both houses of Congress on current financial conditions while fielding questions from the House on Wednesday and the Senate on Thursday.
It was at Humphrey Hawkins in February of 2016 that Janet Yellen helped to kick-off a bullish reversal in Equities and Oil. After the first rate hike from the Fed in December of 2015, markets opened 2016 on a troubling note as both stocks and Oil sold off for the first six weeks of the year. But when Chair Yellen took the podium on day two of her testimony on February 11th, 2016, she said that the Federal Reserve would not take any policy options off-the-table in the effort of shoring up American markets, including the prospect of negative rates. In short order, a low was set in Oil prices and equities were off to the races.
With such an intense focus on the prospect of balance sheet reduction in tandem with rate normalization, will this be the opportunity for Chair Yellen to introduce more structure around the bank’s upcoming plans? And if so – what can she say that might reverse the rather aggressive trend of weakness in the Greenback that’s plagued the currency for much of the year?
On the chart below, we’re looking at that 2017 run in the U.S. Dollar as price action remains pinned-down near support in the lower-portion of a bearish channel.
Chart prepared by James Stanley
Over the past few trading days, we can see where the U.S. Dollar has attempted to build-in a bullish structure, basing over the key Fibonacci level at 95.86. Non-Farm Payrolls on Friday produced a spike in price action, at which point buyers drove prices to fresh short-term highs. Buyers showed-up again to offer higher-low support around the 96-handle, and have opened this week by bringing prices up to another fresh near-term high. This could be the initial stages of a bullish move in-front of Chair Yellen’s speech later this week:
