Dollar softens ahead of Yellen speech

An air of uncertainty ripples across the financial markets ahead of Tuesday’s heavily anticipated speech from Fed Chair Yellen which may provide some clarity on the number and timings of US interest rate hikes this year. This speech comes at a time when market participants have been left bewildered by the unexpected hawkish bias from Fed officials that contradicted the dovish FOMC statement in March. Although initially the inflated expectations over the possibility of a US interest rate rise in April offered the Dollar bulls a welcome boost, this seems to be wearing off with the Dollar Index displaying signs of exhaustion. Investors should keep in mind that even if Friday’s NFP report exceed expectations, the unstable global environment which has exposed the US economy to downside risks may sabotage the Federal Reserve’s efforts to raising US rates abruptly in April. The Dollar remains under pressure and with the current Fed futures pointing to an 88.5% chance that US rates will be left unchanged in April, bearish investors should exploit this opportunity to attack the Dollar at any given chance.

The Dollar Index is bearish on the daily timeframe as there have been consistently lower low and lower highs while the MACD trades to the downside. Prices are trading below the daily 20 SMA with the current downwards momentum pointing to a potential decline towards 94.00. This correction may encourage bearish investors to act with potential previous support around 96.50 acting as a dynamic resistance which should invite a steep decline towards 94.00.

Stock markets capped

Stock markets displayed signs of exhaustion during trading on Monday following the decline in oil prices which weighed on sentiment and dampened investor risk appetite. American markets struggled into green territory as expectations of a potential April US interest rate rise and heightened caution ahead of the NFP on Friday encouraged investors to seek safe-haven assets. Although Asia initially showed signs of resilience on Monday, the risk aversion which continues to strengthen the safe-haven Japanese Yen has left the Nikkei depressed consequently pulling Asian equities lower. With oil prices declining and risk aversion rife, Europe may be poised to open lower especially after being infected from Asia’s bearish domino.

Sterling under pressure

The Sterling experienced modest gains against the Dollar during trading on Monday but investors must be under no impression that this has anything to do with an improved sentiment towards the Sterling. Sentiment towards the pound is heavily bearish and concerns over the impacts of a Brexit to the UK economy continue to haunt investor attraction towards the currency. Overall domestic data remains lackluster and with inflation showing little signs of growth, the Bank of England has been provided with yet another reason to keep UK rates unchanged. As the UK’s EU referendum vote looms, volatility may likely intensify in favour of the bears and this should provide sellers an opportunity to send the pound lower moving forward.

The GBPUSD has been bruised by the bears and may receive further punishment as ongoing concerns over the Brexit diminish investor attraction towards the currency. Prices have found some comfort above the 1.41 support, but may be poised to decline later in the week as the bearish pressure mounts. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A breakdown below 1.41 should open a path towards 1.40 and potentially lower.

Commodity spotlight – Gold

Gold bulls were offered a lifeline in the form of the $1210 support during trading on Monday as renewed risk aversion and Dollar weakness boosted the precious metal’s allure. There is some skepticism about the possibility of US rates being increased in April and this may fuel Gold bulls to send prices back towards $1250. Janet Yellen will be speaking today and if a dovish hint is detected then gold could be provided with the foundation needed to break away from the $1210 support ahead of the NFP on Friday. From a technical standpoint, a breakout above $1223 may open a path back towards $1250 and potentially higher. Bulls remain in control as long as prices can keep above the key $1200 support.