One of the contradicting elements I found was her view on the near term possibilities, where in this statement, implied at the least that things arent as rosey as the market may think - "Fed Can Provide Accommodation Should Expansion Falter in Near Term" - a truly recovering economy wouldnt need this statement but maybe this is nit picking, but nonetheless could explain the lack of certainty that caused the USD sell-off initially.
The USD 30D Fed Funds rallied to imply a P=30% chance of a September hike, up from 21% yday and one of the highest post-brexit readings, with equities look to have broken lower, whilst gold remains in territory, despite the USD appreciation implying what is expected to be the start of a broader medium term risk-off shift now.
Given this fresh lease of life in USD STIR, attention will now closely focus on the USD employment report next friday, where if another 250k+ print comes in im sure we could see another 10pct addition to the september odds, if not more - especially if the unemp rate fell close to the feds terminal expectations of 4.8%.
From a trading perspective, and the above information in mind, I remain long on USD vs GBP on rallies - 1.32 or 1.325 prices are the best to engage.. On hind sight some legacy longs should have been added in the post-Yellen vol to 1.328 but given the uncertain comments it is forgivable not to have added/ held here. Next weeks, UK PMIs will remain key for Sterlings hold above 1.30/29 level - a miss and we will likely test lows again, though a hit and sterling bulls will likely continue to be happy to own the pound here in the low 1.30s on the pretence that Carney will not e so forthcoming in future policy despite his aggressive dovish fwd gd . Also I am watching USDJPY - given US equities may pop on the back of this, short gbpjpy or usdjpy to own a risk off asset may prove to be a good call - especially at the 133 level for sterling. This also hedges the long usd exposure in the event data doesnt hold up.
Yellen JH Speech highlights:
-Fed's Yellen: Case for Increase in Fed Funds Rate Has Strengthened in Recent Months
-Yellen: Growth Has Been Sufficient to Generate Further Improvement in Labor Market
-Yellen: Economic Outlook Uncertain, Not on Preset Course
-Yellen: Economy Continues to Expand, Led by Solid Growth in Household Spending
-Yellen: Range Of Reasonably Likely Outcomes For Fed Funds Rate 'Quite Wide'
-Yellen: U.S. Economy Nearing Fed's Goals Of Maximum Employment, Price Stability
-Yellen: FOMC Continues to Anticipate Gradual Increases in Fed Funds Rate Will be Appropriate Over Time
-Yellen: Even If Average Rates Remain Lower Than In Past, Will Be Able To Respond Effectively Under Most Conditions
-Yellen: Fed Studying Many Issues Related To Policy Implementation
-Yellen: Will Likely Need to Retain Many Policy Tools Developed to Promote Recovery From Crisis
-Yellen: Policy Makers 'Inside And Outside' Fed May Wish to Consider Additional Options at Some Point
-Yellen: Business Investment Remains Soft
-Yellen: Subdued Foreign Demand, Dollar Appreciation Since Mid-2014 Restraining Exports
-Yellen: FOMC Sees Inflation Rising to 2% Over Next Few Years
-Yellen: Fed Wants Policy Toolkit That Allows Response to Wide Range of Possible Outcomes
-Yellen: Inability to Generate Substantially More Accommodation Than Could Be Provided By Near-Zero Fed Funds -Rate Was Serious Limitation Of Pre-Crisis Toolkit
-Yellen: Criticism of Asset Purchases, Forward Guidance Fails to Consider Unusual Headwinds After Crisis
-Yellen: 2013 'Taper Tantrum' Illustrates Difficulty of Predicting Financial Market Reactions
-Yellen: Fed's Ability to Use Interest on Reserves Likely to Play Key Role for Years to Come
-Yellen: FOMC Not Actively Considering Raising Inflation Objective, GDP Targeting
-Yellen: Forecasts Now Show Fed Funds Rate Settling Around 3% In Longer Run
-Yellen: Expect To Have Less Scope For Interest-Rate Cuts Than Have Had Historically
-Yellen: Understanding of Forces Driving Long-Run Trends in Rates Limited, All Predictions Uncertain
-Yellen: Real Neutral Rate Close to Zero, Could Remain At Low Level if Slow Productivity Growth, High Global Saving Continue
-Yellen: Fed Can Provide Accommodation Should Expansion Falter in Near Term
-Yellen: Fed Could Resume Asset Purchases in Future Downturns
-Yellen: Forward Guidance, Asset Purchases Will Remain Important Components of Fed's Toolkit
-Yellen: We May Need to Purchase Assets During Future Recessions
-Yellen: Policy Makers, Society May Want to Explore Additional Options for Fostering Stronger Economy
-Fed Chairwoman Janet Yellen Sees Stronger Case for Interest-Rate Increase
-Yellen: Future Policy Makers May Wish to Explore Possibility of Purchasing Broader Range of Assets
-Yellen: Society Should Explore Ways to Raise Productivity Growth