With the recent downturn in the positivity surrounding financial markets, last week ended on a relatively subdued note, even though the January NFP was weaker than expected. The market seemed to focus on the positive factors which was highlighted by the drop in the unemployment rate from 6.7% to 6.6%. This week all the market chatter seems to be focused on the new FED Chairwomen ‘Janet Yellen’ as she testifies before the Senate Committee tomorrow.

For market participants we will be looking for two major insights from the new FED Chair;

1. What her stance is on Tapering and its relationship with the unemployment rate and recent jobs numbers.

2. If she is likely to continue to unwind the tapering in the same fashion as previous FED chair Mr Bernanke.

The general market consensus,  is that Yellen although regarded as a dove will continue with the FED’s existing mandate to stick to its tapering plans. If we get guidance of this nature we will expect to see the USD strengthen over the next few trading days. I expect her to also reiterate the existing FED policy of that rates are unlikely to rise any time soon, regardless if the 6.5% unemployment target is reached. I think the general consensus felt that the US economy would be in a lot stronger position at this 6.5% when in reality it is a long way from this mark.

In conclusion we will be keeping a close eye on Ms Yellen tomorrow, but don’t be expecting to much surprise, this script will have been written well in advance and I don’t believe that she is going to spook the market, a smooth transition into the chair would be in the best interests of everybody.