Dollar ended the week as one of the strongest major currency, next to Sterling. Markets initially hesitated in their reactions to Fed chair Janet Yellen's speech in Jackson Hole symposium. But traders made up their mind soon as the upbeat comments from a known dove Yellen should have solidified the case for rate hike in near term. That also added to hawkish comments from other important Fed officials like vice chair Stanley Fischer. Traders then pushed g Dollar and treasury yield higher while futures priced more chance of Fed hike in near term. Fed fund futures ended the week indicating 33% chance of a September hike and 59.1% chance of hike by December. The greenback will now turn into August employment data to be released this Friday for more guidance.
In short, Yellen said that "in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal-funds rate has strengthened in recent months." But she still qualified that rate decision "always depends on the degree to which incoming data continues to confirm the Fed policy committee's outlook." However, it should be noted firstly that another round of solid August data is needed, including job, before Fed policymakers make their calls in September meeting. Also, there are talks that Fed wouldn't hike before presidential election in November.
Technically, dollar index drew strong support form near term channel line and rebounded. The breach of 55 days EMA indicates that fall from 97.56 should be over. Further rise is likely for this resistance again. However, the structure of the rise from 91.91 is not clearly impulsive yet. Thus, dollar index could struggle to extend gains above 97.56.
The developments in treasury yield is also worth a note. Firstly, 10 year yield break out from recent range and took out 1.628 resistance and resumed the rise from 1.336 low. Secondly, the break of 55 days EMA seems decisive. Further rise is now in favor back to 1.89 resistance. It should be noted that both dollar index and yield should react synchronously to confirm underlying change in Fed hike expectations. Otherwise, move in dollar could be seen in doubtful.
Regarding trading strategies, our GBP/JPY short was stopped as the cross rebounded ahead of 128.66 low. The position was entered at 135.24, closed at 132.50. Meanwhile, we bought EUR/AUD on retreat to 1.48. As noted before, 1.4404 should be a bottom in the cross and near term trend is reversing. We'll put at stop at 1.4650 and wait for a break through 1.4905 resistance.
For new trades, we'll look for dollar long opportunity this week. Comparing major currencies, Sterling is for sure one to avoid to sell short. While EUR/JPY is held below 114.80 resistance, Friday's rebound suggests that it might be following GBP/JPY higher. Also, we would like to note that there are speculations of additional easing by BoJ in September. Thus, we're try to buy USD/JPY on a retreat to 101.00 this week. And a break of 102.64 later will target 107.48 resistance.