Dollar jumped overnight on a string of solid economic data but quickly reversed. There were a chorus of hawkish comments from Fed officials. But those comments provided no support to the greenback. In the background, stocks extended recent record record with major indices showing upside acceleration. Treasury yields also strengthened even though both 10-year and 30-year yield are bounded in recent range. Fed fund futures are pricing in 26.6% chance of a March hike and 74% chance of hike by June. That was up from prior day’s pricing of 17.7% and 68.0% respectively. The lack of sustained buying in Dollar with positive development elsewhere is worth noting. We can’t find any convincing reason for the sluggishness in the greenback yet. But it’s likely that Dollar will head lower before going up again.

Yellen defended Fed before the House

Fed Chair Janet Yellen’s second day of testimony to the Congress revealed nothing new about her views on monetary policies. Nonetheless, she was scrutinized by House lawmakers for Fed’s performance. Yellen had to admit that growth had been "quite disappointing" since the global financial crisis since nearly a decade ago. Nonetheless, she noted that "the economy has recovered more quickly, for example, than … European Union economies have in the aftermath of the crisis." And Fed is coming "very close" to achieving the objectives of maximum employment and price stability. There were voices criticizing Fed for not finding the "proper balance" between regulation and growth. But Yellen defended that "the economy is recovering from a very severe crisis." And, "we’ve put in place stronger financial regulation that has forced our banks to build up their capital buffers to deal with problem loans and to strengthen themselves to the point where they have been to support economic growth and recovery in our economy."

NY Fed Dudley: Details of fiscal policy could tile risks to the upside

New York Fed president William Dudley said "we expect to gradually remove further monetary policy accommodation and snug up interest rates a little bit further in the months ahead". But he also noted that there was little detail regarding fiscal policies for the moment and that made it "really hard to factor into your forecast". Nonetheless, "we’re probably going to get some fiscal stimulus at some point, so that is just another factor that tilts the risks to the economy a little to the upside." Philadelphia Fed president Harker echoed and said that "until there’s more specificity on policies I really can’t factor those into my forecasts."

Boston Fed president Eric Rosengren sounded hawkish and said that "it will likely be appropriate to raise short-term interest rates at least as quickly as suggested by the Fed’s current … median forecast, and possibly even a bit more rapidly." And he warned that "if GDP is growing faster than potential and we reach both elements of the dual mandate, the Federal Reserve risks overshooting".

Aussie higher after mixed job data

Aussie strengthens broadly today after job data. Employment in Australia grew 13.5k in January, above expectation of 10.0k. However, that was solely driven by part-time jobs as full-time jobs contracted by -44.8k. Unemployment rate, on the other hand, dropped slightly to 5.7%. Consumer inflation expectations slowed to 4.1% in February.

Looking ahead, ECB will release monetary policy meeting accounts in European session. US will release housing starts, building permits, jobless claims and Philly Fed survey.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7658; (P) 0.7689; (R1) 0.7740; More…

AUD/USD’s rise resumed by taking out 0.7695 and reaches as high as 0.7731 so far. Intraday bias is back on the upside for 0.7777 resistance next. Bearish divergence condition remains in 4 hour MACD. Thus, we’d expect strong resistance from 0.7777/7833 resistance zone to limit upside and bring near term reversal. On the downside, break of 0.7605 support will indicate that rise from 0.7158 has completed already and turn bias back to the downside for 55 day EMA (now at 0.7517) first.

In the bigger picture, we’re still treating price actions from 0.6826 low as a correction. And, as long as 38.2% retracement of 0.9504 to 0.6826 at 0.7849 holds, long term down trend from 1.1079 is expected to resume sooner or later. Break of 0.6826 low will target 0.6008 key support level. However, firm break of 0.7849 will indicate that rise from 0.6826 is developing into a medium term rebound, rather than a sideway pattern. In such case, stronger rise should be seek to 55 month EMA (now at 0.8205) and above.

Economic Indicators Update

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