10/07/'07 - Bernanke in pursuit of deliberate Monetary Policy strategy?

[B]Economic News [/B]

[B]USD [/B]

US consumer credit leapt $12.9bn in May, going against market expectations of $5bn - $8bn. Even though part of the increase was seasonal, the strong data (focused in revolving credit) shows that consumers are on aggregate so far unfazed by the housing threat.

Yesterday, USD currency trading was relatively mild against most of majors, largely attributed to the absence of data out of the U.S. economy. However, the USD continued to remain pressured with expectations that the Federal Reserve will hold rates for the remainder of the year, whilst other respective central banks are foreseen to be tightening. In other news, Friday’s robust jobs report was not enough to reverse the recent trend of narrowing interest rate advantage for the dollar over major European currencies, which has eroded demand for the greenback according to analysts. Crude oil touched 11 month highs during the intra day of trading with a high of US$76.32. Overall, oil rose by US$0.16 a barrel to US$75.78. Looking ahead, plenty of attention will surround Federal Reserve Chairman Bernanke today, who is expected to talk about inflation at 17:00 GMT.

[B]EUR [/B]

Ger May industrial production rebounded 1.9% (s.a.) in May (4.6% yr) after falling 2.1% in April. Manufacturing was up 2.3% (6.1%yr) while construction rose only 0.3% (-3% yr). Ger May current account surplus was �9.6bn versus �4.9bn in the same month last year. The number is not all due to a stronger trade balance, but rather also reflects that German companies are investing abroad rather than domestically.

Ger May trade balance was �17.5bn, a little stronger than expected. Although exports fell 0.8%, imports declined by 3.6%. A positive net exports contribution to Q2 GDP looks likely.Yesterday, the EUR was steady against the USD. The German Trade Balance came in better than expected at 17.6 bln (Forecast: 16 bln), both imports and exports were lower, but the larger drop in imports drove the overall trade surplus higher. yet did little to move the EUR out of its tight range trading against the USD.

Industrial production for the same month was right in line with expectations, but the April figures were revised higher. With only French and Italian industrial production due for release today, the EUR should move almost exclusively on the market’s reaction to US Fed Chairman Bernanke’s comments on inflation pressures. Additionally, yesterday the GBP continued to trade steadily above the 2.0000 levels despite PPI Core Output slightly down on expectations only maintain the GBP strengthen against the majors.

UK Jun PPI output prices rose 2.4%yr, unchanged from May. Input prices rose 2.1%yr. The BoE is concerned about firms raising their output prices in order to widen margins, but may take some comfort from the slowest m/m increase in output prices in 6 months (0.2%). Today traders Looking ahead for key data out May’s Trade Balance of the UK will be released,and with forecasts the figure will be released at -6.6 bln (Prior: -6.32 bln) we may be witnessed for a reduction of the GBP against the majors.

[B]JPY [/B]

Since the publication of the US non-farm payrolls last Friday, the Japanese Yen has continued to fall to new record lows against the EUR and decade or multi-decade lows against other currencies.

Yesterday, at 0:50 GMT the Core Machinery Orders data was published in Japan. 5.9% Vs. 2.2% compared to April. The Core Machinery Orders rose for a second straight month in May, helped by strong growth in orders for electrical machinery. The index doubled itself, more than expected, and according to that fact; Japanese stocks rose to new 7-Year highs. But at the same time trade volume remained moderately slow, with 1.7 billion shares changing hands on the Tokyo exchange’s first section, below last year’s daily average of 1.9 billion shares. Advancing shares beat decliners by a ratio of more than two to one.

The Core Machinery Orders data has a high importance to the Japanese economy, due to the fact that Machinery orders are widely regarded as a leading indicator of corporate capital investment, which accounts for about 15% of Japan’s gross domestic product (GDP).

Many central banks expect the Bank of Japan to raise its interest rate target to a 12-year high of 0.75% in August from 0.50%, after elections for parliament’s upper house. Meanwhile, the top monetary policy official of Japan’s ruling party said on Monday that current economic conditions do not warrant an interest rate hike in August, countering market expectations of a central bank move next month, as it seems at the moment the JPY will continue to suffer and will stay low against most of the other currencies even if the Bank of Japan lifts its key rate. The Japanese central bank is widely expected to leave interest rates on hold at this week’s meeting.

[B]Technical News [/B]


On the 4 H chart we notice that the bullish trend is running a head. The volatility decreased and the EUR/USD is in consolidating after it broke the 1.3610 resistance level. The price should continue to move upwards in a range of 1.3550 to 1.3630. As it seems, the bullish pressure will continue to gather momentum also today.


On the 4 H chart, a rising wedge (bullish) is forming which may imply a continuation and as such, its recommended to time the entrance to the market with short term charts, 2.0120 seems like a strong entry point. At the moment the pair is being traded around 2.0100 to 2.0200 range. The volatility is low, we should expect to see bullish pressure on the GBP. The uptrend should continue on 2.0200 resistance.


The USD/JPY broke the 123.20 support but immediately rebounded. USD/JPY is in a downtrend supported by 1H exponential moving averages. The volatility is low. Bollinger bands have tightened. We should expect to see a bearish configuration. 1H, 4H Elliott pattern implies that the USDJPY will continue to gather momentum. The target is expected at 122.90


The USD CHF is in a bearish configuration. The volatility has decreased. USD/CHF moves without trend and swings around exponential moving averages (EMA 50 and 100). Bollinger bands have tightened. 1H, 4H Elliott pattern implies a continuation of the bearish pressure. The target is at 1.2135

[B]The Wild Card

The EUR/JPY broke 167.82 support. USD JPY is in a uptrend supported by 1H exponential moving averages. The volatility is low. Bollinger bands have tightened. We should expect to see also today a bullish configuration. Forex 1H, 4H Elliott pattern implies that the USD JPY will continue to gather momentum. The target is expected at 168.25