Market Begging for a Hawkish Yellen

Traders positioned for a hawkish hint from Yellen by buying US dollars, selling bonds and dumping gold on Monday. The Canadian dollar was the best FX performer while the yen lagged. The RBA minutes are the highlight in Asia but all eyes are on Yellen's testimony in US trading and some key European data points.

Last week, traders positioned for a hawkish hint in the FOMC minutes but were left disappointed, will it be the same with Yellen? The US dollar rallied mildly but broadly on Monday and gold plunged more than $30 – two moves that point to another attempt to get ahead of a big turn in monetary policy.

To sustain the moves, the market will need Yellen to talk about sooner rate hikes, rising inflation pressures or a near-target jobs market. If she focuses on a patient approach and slowly hiking rates when appropriate – like Lockhart did on Friday – the market could be disappointed again.

Headlines on Monday did little to jar markets. Draghi largely repeated his ECB press conference in European parliament by saying the ECB is prepared to use unconventional tools if needed and that economic risks are on the downside. The IMF said the ECB should consider QE if inflation remains low.

The euro was higher on the day after embattled Portuguese company Groupo Espirito Santo raised $100 to avoid being forced into default by Nomura. The DAX was the best performer in global stock markets, giving Germans another reason to cheer.

With the World Cup wrapped up, the Australian dollar was the worst performer from kickoff to closing ceremonies. Dovish comments from Stevens were a key reason and the RBA will have another chance to talk down the Aussie with the RBA minutes due at 0130.

Afterwards, the focus will quickly shift to June UK CPI numbers, the German ZEW, US retail sales and Yellen in what could be an action-packed day of trading.