Whatever happened to the Yellen fallout? This week started with a limited currency range and we are ending the week on the exact same note. President Obama's Fed Chair nominee, Janet Yellen, stuck to her dovish reputation during her job interview in front of the U.S. Senate Banking Committee yesterday. The immediate market response to her status quo viewpoint allowed both the Dow and S&P's to close at record highs. As to be expected, the overall dollar move ever since has been rather lackluster, most likely as the markets had already been prepped for Yellen's stance in her statement that was conveniently leaked the evening before.
To carry the Bernanke baton favors riskier strategies. Risk currencies like the NOK, GBP and AUD have been outperforming, while JPY remains offered. The "patience trade" - short yen outright - is looking to close out this week above the psychological ¥100 benchmark level. It has taken some time for the dollar to drag its way here, supported by a non-tapering Fed while the yen falls foul to the BoJ's current easing program. A bounce back in U.S. yields and a near +2% rally in the Nikkei has helped the dollar retain the ¥100 handle. The downward momentum for the yen should be maintained, especially since the Japanese Finance Minister Taro Aso indicated that Abe's government would push back against a strengthening of the currency.
Following Janet Yellen’s relatively uneventful testimony, the "mighty" dollar bulls are confident that they remain in control. Currently, there are no other reasons to suggest otherwise. Dealers and investors will be expecting any near-term pullback in the USD to provide a good opportunity to add to any 'long' dollar positions at better levels.