FX.co ★ EUR/USD. Yellen denied Yellen: US Treasury Secretary rocked the markets

Traders of the euro-dollar pair continue to wage a positional struggle for the 20th figure. The main newsmaker of today is US Treasury Secretary Janet Yellen, who, as you know, was the predecessor of Jerome Powell as head of the Fed. At first, she stirred up the market with her hawkish attitude, but then she refuted her own words. On the one hand, the situation is comparable to a storm in a glass: the Treasury Secretary dropped a phrase that was picked up by the markets, but almost immediately clarified her position, refuting the original meaning. On the other hand, Janet Yellen's rhetoric prompted traders to certain hawkish thoughts, against which the dollar began to enjoy increased demand. This reminds us of the saying "What is said can't be unsaid". Even though Yellen refuted her words, hopes still returned to the market that the Federal Reserve will sooner or later be forced to curtail QE ahead of schedule, and then raise the interest rate.

So, it all started when Janet Yellen, during her conversation with reporters, suggested that the Fed might need to raise rates "to prevent overheating of the economy and contain growing inflationary pressures." She linked these assumptions with the implementation of the "American Rescue Plan" (in the amount of $1.9 trillion), against the background of the discussion of a larger infrastructure plan of Joe Biden.

The markets seemed to be waiting for such a remark. Treasury yields began to grow again, followed by the American currency, which strengthened its positions throughout the market. It is noteworthy that earlier representatives of the White House refrained from comments or (even more so) recommendations regarding changes in the parameters of monetary policy. A striking exception here is Donald Trump, who, as president of the United States, literally demanded that the Federal Reserve lower the interest rate. But Trump quite often went beyond various formal and informal protocols, so his attacks should be classified in a "separate category." In general, the officials of the presidential administration and ministers recognized and emphasized the independence of the US Federal Reserve System.

Probably, for this reason, Janet Yellen clarified her position today (and, in fact, refuted her own words). Commenting on the situation to journalists of The Wall Street Journal, the Treasury Secretary stated that she did not foresee an increase in the interest rate by the Federal Reserve System and, in general, did not intend to give such recommendations to the members of the American regulator. At the same time, she noted that she "values the independence of the Fed like no one else," obviously referring to her experience as head of the Fed.

In response to such verbal somersaults, the dollar index at first froze in place and then began to gradually slide down, reflecting the end of the upward impulse. The euro-dollar pair, in turn, settled at the base of the 20th figure. Throughout the day, buyers and sellers of EUR/USD "fought" for this price level. As a result, the parties agreed on "neutral territory", around the 1.2000 mark.

The fact is that even before Yellen's resonant statement, some experts began to express doubts that the rise in inflation would be temporary. Former US Treasury Secretary Lawrence Summers also added fuel to the fire, warning that the latest White House fiscal initiatives "are too risky in terms of inflation."

Such rhetoric runs counter to the position of the Federal Reserve. At the beginning of the year, Fed Chairman Jerome Powell warned that the regulator would not "reflexively" react to the recovery of key economic indicators. But then he was not heard: the dollar strengthened its position against the background of falling unemployment, growing employment, accelerating inflation, and consumer activity of Americans. The Fed acknowledged that the US economy is recovering at a faster pace, ahead of earlier forecasts. In this regard, the regulator even revised the December forecast for GDP growth in 2021 (and quite significantly - from 4.2% to 6.5%). But at the same time, the members of the American regulator still voiced "dovish" rhetoric, insisting on maintaining the ultra-soft parameters of monetary policy. As a result, the Fed was able to convince traders that the regulator will adhere to an accommodative policy "in spite of everything," that is, in spite of the V-shaped recovery of the US economy and a spike in inflation - even if it exceeds the target level. Traders were forced to accept this scenario, after which the dollar came under background pressure - the market ignored even strong US macroeconomic reports.

And now the dollar bulls seem to have a "second chance".

In my opinion, Jerome Powell and the overwhelming majority of his colleagues will defend their "dovish" position, thereby leveling the "hawkish" sentiments of traders. Moreover, verbal speculation around the prospects of curtailing QE and raising the interest rate will force the Fed members to reaffirm their commitment to the accommodative policy. This fact will cool the fervor of dollar bulls and the greenback will again be under pressure. The likelihood of such a scenario being realized is quite high, given the results of the last Fed meeting and Powell's previous rhetoric. Therefore, today it is better to be out of the market. If by the end of Wednesday the buyers are able to hold the 20th figure, then we can consider longs to the first resistance level of 1.2070 (Tenkan-sen line on the daily chart).