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Today news that Donald Trump Jr. may be in legal trouble took its toll on the dollar as traders flocked to the euro for safe haven flows. We think that dynamic is likely to continue over the next few days, even as Janet Yellen prepares to testify before Congress tomorrow.
Ms. Yellen’s hawkish views are well known so much of her testimony will be discounted unless in the very unlikely event she hints that the Fed is open to two rather than one rate hike. Barring that, whatever knee-jerk move the buck may have will likely be reversed. Meanwhile, today’s email revelations suggest clear criminal activity by Mr. Trump Jr. according to various legal scholars (although not treason). In any case the reverberation of the story is likely to continue to pressure US assets as investors begin to price in political risk.
All of this should help the EURUSD, which is a notoriously trending pair and could hit the 1.1500 level tomorrow regardless of what Ms. Yellen says.