US Dollar Bulks Up on Hawkish Yellen

  • Equity investors paying attention
  • Yen could rally despite yield differentials
  • GOLD remains an attractive diversifier
  • Pound at risk for moves on Super Thursday

SMAL FLINCH - So yesterday Yellen kept the door open for a December rate hike and the Dollar rallied accordingly. What was interesting to me is that even stocks sold off. Perhaps stock market participants are getting a little worried it actually might happen this time, though we aren't likely to see any intensified liquidation unless tomorrow's US employment report comes in at or better than expected. I think if tomorrow's report comes in on the healthy side, this will be what really gets equity bulls nervous. Interestingly enough, in only about 2 weeks, the futures market has moved from a 30% chance for a December move up to nearly 60% now.

THE YEN - All of this should continue to translate into US Dollar gains, though there are some exceptions that I think need to be noted. The first is USDJPY. I have no position here but feel there is room for any favorable US Dollar yield differentials to soon be offset by a downturn in risk sentiment. So if the US employment report strengthens prospects for a December rate hike, we still may see USDJPY trade lower, if risk sentiment deteriorates on the news. The correlations between the Yen and risk off flows are still relevant and should not be discounted.

THE YELLOW METAL - The other exception is GOLD. All of this Dollar buying has been weighing heavily on GOLD over the past couple of weeks. But just as with the Yen, and perhaps even more so, I think there are other things that can drive GOLD outside of monetary policy divergence. GOLD could just as easily trade sharply higher if risk sentiment comes off, even with the Dollar rallying. I am long GOLD right now and would like to see the yellow metal hold above $1100 on a daily close basis.

The #Yen and #Gold might not do what you think in sessions ahead. Via @joelkruger

THE POUND - But for today, a lot of you will be watching the Pound. I haven't been trading the UK currency but if you are, you want to look out to see what comes of the BOE's inflation forecasts and you want to see if Weale or Forbes, or both, jumped over to the hawkish camp with McCafferty. If inflation forecasts show any signs of a pickup, or if the BOE Minutes produce a more hawkish leaning, this could open the door for some relative outperformance in the Pound. The Carney presser will also be interesting to watch.

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