Yesterday, the U.S Senate confirmed appointment of Janet Yellen as the next chairperson of the Federal Reserve. She was a strong supporter of Bernanke’s policy of quantitative easing, which pushed interest rates to all time lows through continued massive purchase of government bonds. While the FED started to slow down the pace of QE during last meeting, it remains to be seen if the new leader will continue the “taper”, something we should find out after the next one.
Conventional wisdom (pundits) implies that the US Dollar should benefit from liquidity withdrawal, on account of rising interest rates, which should make the USD more attractive. So far rates on 10 year notes increased to about 3%, from 1.6% earlier in 2013, but the Dollar has very little to show for it. The FED will have to continue its tapering for the rates to run up higher and possible lead the Dollar. Now, with Mrs. Yellen at the helm, analysts are not so sure that will be the case. Plenty of people predicted 2014 to be “the year of the Dollar”, but that is far from a sure thing. The next policy meeting could provide some answers.
The Euro had a good today, potentially suggesting more upside. In relation to the Pound, the common currency seems to building a base or perhaps a bottom, as seen on the daily chart. I am not convinced about any large-scale rally here, but some recovery is likely, especially if the price breaches the latest resistance on 1H chart, at 0.8330. For such eventuality, I have a buy order at 0.8336, with a modest objective of 30-40 pips. At this point, we still have to consider that current price behavior is simply consolidation, so a failed breakout means that losses will have to be taken quickly, and small.
Mike K.