The currency market got off to a cautious start before the testimony from Federal Reserve’s Janet Yellen. The U.S. dollar was little changed against the euro and British pound Monday and while the euro took a dip below the 1.06-level, we still cannot speak of a significant downside breakout. The pound sterling ended the trading day in positive territory and it currently appears poised to break through the 1.2550-barrier. For sterling traders, it will be an interesting trading day with U.K. Consumer Prices being due for release at 9:30 UTC. Traders should prepare for volatile swings even ahead of the upcoming inflation figures. Above 1.2560 the pound may head for a test of 1.2575/95. While the risk for inflation is clearly on the upside there is also potential for disappointment last month.
The euro is hovering around the 1.06-mark and we still wait for a sustained break below the 1.0580-support. Once that level is breached we expect further losses towards 1.0550 and 1.0520. On the upside, the 1.0650-level may limit potential gains but today’s price action will hinge on Yellen’s testimony. Euro traders will also pay attention to the German ZEW Survey and Eurozone GDP figures, both reports scheduled for release at 10:00 UTC.
The Fed chair will start testimony in Congress in Washington at 15:00 UTC. While Yellen is not expected to give any clear hints as to the timing of the next rate hike, her comments on monetary policy could trigger larger market moves.
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