EURUSD: Long At 1.1280 Ahead Of Brexit

FX:EURUSD   Euro / U.S. Dollar
Fed Chair Janet Yellen said the central bank’s ability to raise interest rates this year may hinge on a rebound in hiring that would convince policymakers the US economy is not faltering. In testimony before Congress that expressed general optimism about the economy and played down the risk of a recession, Yellen nevertheless said the Fed will be cautious about interest rate increases until it is clear the job market is holding up. Immediate risks, like the potential fallout from Britain's June 23 vote on whether to leave the European Union, could darken the US economic outlook, she told the Senate Banking Committee, as could a downturn in productivity growth that may prove a permanent drag on the economy.
Her comments suggest the US central bank is unlikely to raise rates at its next policy meeting in late July, since it will only have one additional monthly employment report in hand by that time.
There was more explicit attention during Yellen's testimony to the possible implications of the "Brexit" vote, which she said could have "significant repercussions." Asked if Britain's departure from the EU could trigger a recession in the United States, Yellen said: "I don't think that is the most likely case, but we just don't really know what will happen and we will have to watch very carefully."
Although the outcome of the British referendum will be known this week, the jobs issue may take longer to sort out. Fed officials have said they expected US job growth to slow from the average 200k per month typically seen during the post-financial crisis recovery. But the drop to an average of 80k in April and May was particularly sharp and put the economy below the level of job creation the Fed considers necessary to accommodate new labor force entrants. In her testimony, Yellen called the slowdown likely a "transitory" phenomenon. But concerns the hiring slowdown may be longer-lasting, coupled with a lowered sense of US economic potential, mean the Fed's benchmark overnight interest rate is likely to remain low "for some time" Yellen said.
Current Fed policymakers' projections foresee two rate increases this year and three each in 2017 and 2018, a slower pace from what was forecast in March. Yellen will appear before a House committee on Wednesday to complete her semi-annual testimony before Congress.
The dollar erased its early modest gains on Wednesday. Yellen appeared to be a bit more cautious than before – we cannot rule out two rate hikes this year, but the likelihood of a move in July is very low now. We used yesterday’s strengthening of the USD to buy EUR/USD             at 1.1280.

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