Oil with highest price since July

US indexes rose to new historical records, with oil and copper also rising, rising raw materials index. US government bonds fell after Yellen confirmed the FED's position of a gradual rise in interest rates.
Meanwhile, oil has continued to rise and reached a new two-week high as a result of mounting tensions in Iraq that are expected to affect supply. US crude oil rose by 0.8 percent to 51.86 dollars a barrel.
The US reporting season is gaining momentum, with leading US financial institutions reporting the results.
The S&P 500 index ended with an increase of 0.2% yesterday to a new historic peak.

Did the bullish market for the dollar ended?

The US dollar fell sharply against other major currencies in the first half of the year. Investors, however, still have to be careful about declaring the end of the bullish market for green money, some experts say.
US interest rates are still far above those in other developed countries, so many experts recommend investors to prefer bonds outside US in their portfolios.
Consensus forecasts are still for a strong dollar this year, following expectations of further interest rates. And while Janet Yelllen made a step back in her last speech, investors are still expecting a further rise in interest rates this year.
The dollar has risen after Trump's election victory last November, following the expectation that the tax and health reforms planned by the new president will benefit the world's largest economy.
And while healthcare reform is difficult to implement, in the way Trump originally promised, very soon, most likely in August or September, we can expect to see more clarity about tax changes.
The latter may be highly positive for the US dollar and trigger a strong appreciation of the dollar against other major currencies.

Asian indices rose, Dow with a new record after Yellen

Asian currencies and indices rose after Janet Yellen signaled yesterday that the Fed would not hurry with its policy of further rising interest rates.
The dollar fell for the fourth consecutive day, with the dollar index reaching a 10-month minimum.
Serious increases were recorded by the US indices, such as Dow Jones, at a new historic record of 21 532.14 points. Close to record values are the other two leading US indexes.
South Korean Kospi has risen to a new historic record.

The most important of the Fed's decisions

Fully expected, the Fed raised the interest rate on Wednesday by 25 basis points to 1.25%, hinting for another raise by the end of the year.
In her statement, Janet Yellon confirmed her expectations of reaching a 2% inflation rate as well as further stability in the labor market.
At 4.3%, US unemployment is below the long-term stable levels.
Perhaps the more significant news, however, has come in the direction of the plans of the reserve, on reducing the record $4.5 trillion of bond yields.
In the first place, the Fed will invest in redemption of bonds at the expiration of their date of payment if it receives more than 6 billion in interest per month. From then on, the border will be raised by $6 billion a quarter to reach 30 billion a month after one year.
Ultimately, the goal is to reach a balance well below the recent years, but greater than before the financial crisis.
This, however, is a fairly wide margin for market participants, given the fact that the balance sheet was $800 billion before the financial crisis, and is currently close to $4.5 trillion.

The dollar moved away from the lows, investors expect Yellen's performance

The dollar took a little breather on Wednesday after falling to a seven-week low against the yen, while investors awaited the speech by Fed's governor Janet Yellen devoted to monetary policy.
The US currency strengthened by 0.6 percent to 113.30 yen after passing the minimum of seven weeks at 112.57 yen. The Japanese currency strengthened seven consecutive sessions.
The dollar index, showing the dynamics of the US currency against six major currencies, amounted to 100.640 points by 5.45 GMT, adding 0.3 percent. On Tuesday, the dollar fell to 100.26 points, its lowest level since December 8.
The euro was down by 0.28 percent to $1.0683, breaking the day before the mark of $1.07195, which is the maximum value from December 8.
In his speech, Yellen on Wednesday may contain indications of the direction of US monetary policy.

Fed did it! (Part 2)

Economic forecasts

The Fed also released their economic forecasts for the next three years.
The controller assumes that the federal funds rate could rise to 1.375% in the next year; to 2.1% in 2018; and to 2.9% in 2019.
Current average rate is at around 0.625% after raising rates by 25 basis points range to 0.5-0.75%. Thus, the Fed raised their expectations for interest rates and the number of their increase in 2017. The Fed now plans next year to increase the rate three times, by 25 basis points for each increase, while in September, the regulator wanted to raise the rate in 2017 only twice.
The US currency has responded to this sharp rise. By 21.20 GMT the dollar rose by 0.8% against the euro to 1.0530. The dollar index rose by 0.9% to 102.05.
Fed expects the growth of GDP to be 2.1% next year and will remain at approximately the same level until 2019.
The unemployment rate will fall to 4.5% in the period from 2017 to 2019., according to Fed's forecast. Inflation will rise to 1.9% next year and will remain at this level over the next two years.

Fed did it! (Part 1)

The US Federal Reserve raised its key interest rate by 0.25%. The regulator also increased the forecast for the number of rate increases in 2017.
Federal Committee on the open market unanimously voted for interest rate rise to 0.5-0.75% per annum. This is the second increase in the past ten years (the first took place a year ago, in December of 2015).
Fed explained their decision with the continuation of moderate growth in the US economy and the improvement of the situation on the labor market. Although inflation remains below the targeted 2%, the Fed expects its gradual acceleration in the medium term. Raising the interest rate it was widely expected.
The Fed expects that the economy will need only "gradual" increase in interest rates in the future, the regulator said in a statement.
During the press conference, Yellen said that now it is too early to say how the new policy of Donald Trump could affect the United States economy. The Fed chairman said that the country's economic outlook is "highly uncertain".
"All members of the Committee recognize the serious uncertainties about how economic policy may change and how it will affect the economy - said Yellen. She noted that she would not give the elected president of the United States advice on how to conduct economic policy.
"I am a firm believer in the independence of the Federal Reserve," - Yellen told reporters.
The Fed chief also said she wants to see "a tax policy, which contributes to the acceleration of productivity growth that can lead to investment growth".

Dollar has no doubt in the increase of the Fed's rate

The US currency continues to update the long-term highs against its competitors. After a short pause, the dollar "bulls" have intensified again and received new purchase driver. Markets regarded Thursday's rhetoric of Fed as "predatory" because J. Yellen warned about the risks of tightening with increasing rates and made it clear that the regulator will soon resume its tightening policy.
After receiving a new charge of optimism, USD sent euro to new yearly lows under the mark of 1.06, while the USD/JPY attacked the 110.00 barrier and at the moment is close to the next psychological level of 111.00. Despite overbought US currency, players can continue to open long positions due to positive expectations regarding future policy of Trump and the almost 100% probability of increasing the cost of credit in the last for this year meeting of the Federal Reserve.
Particularly deplorable is the situation with the pair EUR/USD. Here we must note the worsening divergence of monetary policies of two key Central Banks. If the state of the US economy justifies the policy tightening, as the Fed speakers do not tire repeating, the ECB intends to continue the stimulus. This intention has confirmed by the head of the European regulator M. Draghi. And in December, the ECB may decide to extend the program of buying assets, which expires in March next year, which promises the single currency further losses.
At the beginning of next week there will be another speech Draghi, and if his rhetoric will wear a pessimistic character with reference to the risks for the region, the EUR/USD may gain a firm foothold under the mark of 1.06 and go to a minimums from the beginning of December 2015 - the area of ​​1.0520.

The new US President - Donald Trump!

The election campaign in the United States once again turned by 180 degrees, as director of the FBI Comey promised not to initiate criminal proceedings against Clinton. Polls claimed that her rating has risen sharply and the dollar jumped after falling at the end of the last week.
Survey results were wrong - we now know that they can not be trusted - it refers primarily to the European elections next year and the referendum in Italy in December.
Policy - is one big unknown. Nominally, as result of election, Trump controls both houses of the parliament, which means that he can implement large-scale political initiatives. However, given the fact that some members of his own party opposed his candidacy, he may have difficulty in complying with these plans - except, perhaps, replacing Obamacare with something else; Yellen's days at the Fed also are numbered (her mandate will end January 31, 2018), it is also likely to be implemented infrastructure investment and tax reform - the latter is most favorable for the US economy in the short term.
The first reaction of the market and further movement:
Safe assets have risen sharply in value against the USD, in particular this applies to JPY. Emerging-market and risk currencies, especialy MXN, collapsed. Given that such a reaction was expected, now that the results are already known, these movements quickly recoup in the opposite direction.
It's amazing how fast prices corrected after the first reaction. We can say that the uncertainty for some time reached a peak, and now we can return to a long-term long positions on the dollar and yen, and shorts in the euro.

Dollar ends the week positive

After yesterday's profit-taking the dollar with new forces resumed climbing. The currency already completely won back the losses incurred on Thursday, and ends the week in a decent positive territory against major competitors. The main driver for purchases of USD is expectations for the US rates. This week the likelihood of raising the cost of lending has reached 70% and is held close to this value.

Against this background, EUR/USD this week slipped by more than 1.5%. During the last three days the pair is actively testing the 1.10 mark and currently is approaching lows from ​​the end of July at 1.0985, thereby violating the integrity of the psychological level, and signaling a high probability of breakdown in the preservation of positive mood of the USD.
As the fresh release from the United States shows, in September retail sales rose by 0.6%. More importantly, the sales index excluding autos jumped by 0.5% against the forecast of 0.4%, rebounding after falling by 0.1%. Positive signals from the consumer sector can support the arguments in favor of the normalization of policy on one of the next Fed meeting.

Now players are shifting their attention to the forthcoming speech of Fed's chairman J. Yellen. From her rhetoric will depend not only the motion vector of the dollar pairs under the end of the week, but the general mood of the financial markets on Monday. In the case of tightening of Yellen's tone, the expectations for rasing rates may dramatically increase, and the dollar will be in demand. If the head of the central bank will adhere to the precautionary and "soft" tone, risky assets will be supported across the board.

The USD/JPY reached 3 weeks maximum against the background of official comments about the Fed rate

The dollar rose to a peak of three weeks against the yen on Monday, as comments by the US Federal Reserve strengthened expectations of interest rate rise in the near term.
The yield on US government bonds rose to the highest levels since June, and interest rate futures indicated that the probability of a rate hike in September exceeded 30 percent, compared with 18 percent before the speech of Fed Chairman Janet Yellen and her deputy Stanley Fischer, showed FedWatch data from CME Group.
The dollar on Monday rose by 0.5 percent against the yen to 102.39 yen, the highest level since 9 August. By 12.00 GMT the dollar strengthened by 0.42 percent to 102.25 yen.
The dollar index against a basket of major currencies grew by 0.19 percent to 95.752. Euro fell by 0.24 percent to $1.1168.
Speaking at the three-day symposium of central bankers in Wyoming, Yellen said, that the probability of a Fed rate to be increased in recent months due to improved labor market indicators and expectations of moderate economic growth has rose.
Yellen did not specify when the US Central Bank may raise rates again, but her deputy, Stanley Fischer, said, that the Fed chairman speach on Friday met the expectations of the likely increase in interest rates this year.

The Fed governor: The chance of a rate hike has increased in recent months

The probability of increasing Fed's rates enlarged in recent months due to improved labor market indicators and expectations of moderate economic growth, said the head of the Federal Reserve Janet Yellen on Friday.
Yellen did not specify when the US Central Bank is about to increase the rate, but her comments reinforced the likelihood, that such a move is possible later in 2016. Fed meetings regardless monetary policy, are scheduled for September, November and December.
Speaking at the three-day conference of representatives of the world's central bankers in Jackson Hole, Wyoming, Yellen said, that the US economy is close to the statutory targets of maximum employment and price stability.
"In light of the steady strong performance of the labor market and our forecasts of economic activity and inflation, I believe that the probability of increasing the federal funds rate has increased in recent months," - said Yellen in her speech.
The Fed chief said, that the regulator still believes, that the rate increase should be "gradual".

Fed kept interest rates unchanged

The US Federal Reserve left interest rates unchanged on Wednesday and signaled that they still plan to raise rates twice in 2016, despite slow economic growth, which indicates a tightening of monetary policy in the coming years.
The decision of the central bank, however, is not very stable, 6 of the 17 members predict at least one more increase this year.
The sharp drop in hiring in the United States forced doubts about the strength of the labor market in the US, before the meeting of the Fed. Fed Chairman Janet Yellen acknowledged the need to see clear signs of economic strength before raising rates.

"We must be sure that there is enough momentum," said Yellen on a press conference.

The Fed also said the economy will grow only 2 percent this year and in 2017, and it is 0.1 percentage points lower than previous forecasts for each year.
Yellen also didn't gave clear signs whether the rates will be raised at the next meeting in late July or the central bank will wait to see stronger data and will decide at its meeting in September.

Yellen defended the tactics of caution

Federal Reserve Chairman Janet Yellen defended the decision of the institution to be cautious in tightening monetary policy, citing global risks.

"Global development increases risks to the economic outlook and financial conditions are not as favorable as in December when there were taken first raise rates in a decade." - Said Yellen in a speech in New York, but did not say when she expects the central bank to proceed with the action.

According to Yellen, the negative effects of volatility in global markets during the first seven weeks of 2016 are likely to be limited, but it is not yet certain. Separately, data, pointing to a strengthening of the base inflation in the US is still not sufficiently convincing.

Fed Chairman assured investors that the institution has the necessary tools to support the economy in the case of recession, although it couldn't lower rates significantly. There are possible however, purchases of assets or exchange of short-term versus long-term bonds.

Daily analysis of the EUR/USD for February 10

EUR/USD

The dollar weakened yesterday as the euro and the Swiss franc led the trade. Markets expect today's announcement of Fed Chairman Janet Yellen, from which is expected to understand what will make the institution in the future with the increase in interest rates. Recent economic data, lower oil prices and instability in stock markets gave little hope that in March we will see a further increase in interest rates.
Euro/dollar continued its upwards momentum yesterday, formed a peak of 1.1337. The pair managed to hold the past few sessions over the 200-day moving average above 1.1054.
The bias remains bullish in nearest term for testing 1.1400 before aim in the region of 1.1500.

Immediate support is around 1.1200. On hourly chart below we have a falling star formation that is descending figure, but overall the bullish scenario remains valid.

Markets welcomed the rise in interest rates by the Fed

The US Federal Reserve increased by 25 basis points the interest rates on federal funds from 0,25 to 00,50% points and ended the seven-year policy of low interest rates. The markets predicted about 84% likely to happen and their reaction was positive. The major highlights of the event are: the Fed predict for the end of 2016 interest rates to reach 1.375%, which means new four increases in interest rates in 2016. According to the Fed, the economy recorded steady progress, there is still what to expected from the labor market. The current 5% level of unemployment is close to medium-term forecast levels. Net exports are hampered by the strong dollar and the construction of new homes has slowed. Investment in the business have increased and economic risks from abroad has decreased since the summer. The strong dollar and weaker oil have influenced inflation and once these factors weaken, it should reach 2%.


The importance of the first raising of interest rates should not be overestimated, as the Fed acknowledged that it takes time to show the new policy effect. According to Janet Yellen gradually raising of interest rates is needed, faster growth or faster rise in inflation would lead to fast raising of interest rates from the Fed, and that slowing growth and inflation will lead to slowdown the increase.