U.S. Dollar Continues To Be Weak - Will Yellen Help Save The Dollar?

Dear Traders,

We welcome you back to a new trading week and hope you will be fit for trading as this week promises to be very interesting in terms of the outlook for U.S. monetary policy. We have Fed Chair Janet Yellen's speech before the Economic Club of New York today and the U.S. Non-Farm Payrolls report on Friday and any of these risk events could determine the dollar's direction.

Despite a quiet trading environment on Easter Monday the market responded to the core PCE index with volatile upswings in favor of the British pound and euro. The core PCE index is the Federal Reserve's preferred gauge of inflation and failed to show the anticipated uptick to 1.8 percent. This inflation measure has not met the Fed's 2 percent goal since April 2012 and investors might want to see rising inflation before attaching more importance to the U.S. dollar trade.

The overall sentiment is still directed against the dollar and it would require unambiguous hawkish hints from Fed officials in order to spur on investors' expectations for an earlier rate hike in 2016. Yellen is scheduled to speak at 15:30 GMT.

The euro benefitted from the weakening greenback and rose until 1.1220. The most important pieces of Eurozone data this week will be German Consumer Prices (Wednesday) and the German Unemployment report as well as Eurozone CPI numbers (Thursday). A stronger reading could support the euro's bullish bias.

EUR/USD

The 1.1220-level has proved to be a crucial resistance for the currency pair. Once it breaks above that level we will focus on the next possible hurdle around 1.1250. A break above 1.1260 could send the euro in a next step towards 1.13 and 1.1350. However, looking at the 4-hour chart we see chances for renewed bearish momentum, provided that the 1.1220-resistance remains intact.

 GBP/USD

The British pound climbed as high as 1.4284 on weaker U.S. personal spending data but could not maintain the high level and now marked a current resistance at 1.4265. If Yellen fails to deliver any fresh hawkish hints we might see a rise towards the next resistance area between 1.44 and 1.4430. GBP may extend its gains until that area before drifting lower again but the performance will mainly hinge on the appetite for USD within the next days. A next support could be at 1.4170/60 whereas a key support is seen at 1.4050.

Important U.S. data for today (timezone GMT):

14:00 Consumer Confidence

15:30 Yellen speaks to Economic Club of New York

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