Bernanke points to inflation and sub prime mortgage concerns

Federal Reserve Bank Chairman Ben Bernanke said US inflation is still too high however core inflation remains in check as forecasts of easing softening commodity prices will curb rising prices. Bernanke did add that the Fed is likely to keep interest rates unchanged rather than cutting this year. US Dollar still weak as the sub prime mortgage and housing problems remain a drag on US economic growth and may get worse before improving.
The carry trade remains strong for the Australian and New Zealand dollar as the currencies traded near two decade highs against the greenback. Higher bond yields and forecasts for further rate increases continue to lure foreign investors.

News and Events:
Federal Reserve Bank Chairman Ben Bernanke said US inflation is still too high however core inflation remains in check as forecasts of easing softening commodity prices will curb rising prices. The Euro and Pound continued their rise to record levels as the sub prime mortgage and housing problems remain a drag on US economic growth and may get worse before improving.
Bernanke did add that the Fed is likely to keep interest rates unchanged rather than cutting this year. Yesterday, the highs for the Euro and Cable were 1.3834 and 2.0550 respectively.
The carry trade remains strong for the Australian and New Zealand dollar as the currencies traded near two decade highs against the greenback. Higher bond yields and forecasts for further rate increases continue to lure foreign investors. AUDUSD at 0.8785 and NZDUSD at 0.7928 in early trading.
Switzerland’s trade surplus came out higher than expected at 1.72 billion Swiss Francs, up from 1.04 billion in May and above an expected 1.15 billion. A declining Swiss Franc allowed higher exports in precision machinery, watches and metals. USDCHF at 1.20005 in early trading today.

Today’s Key Issues (time in GMT):

<SITE>08.30 GB June Retail Sales 0.3% vs 0.4% (MoM)
08.30 GB June Retail Sales 3.5% vs 3.9% (YoY)
08.30 GB June PSNCR �12.4B v �6.21B
08.30 GB June Public Sector Net Borrowing �6.15B vs �8.21B

09.00 CHF July ZEW Expectations previously -0.1

12.30 US July 14th, Initial Jobless Claims 311k vs 308k

12.30 CAD May Wholesale Sales 0.5% vs -3.1% (MoM)
</SITE>12.30 CAD May Int. Securities Transactions CAD2B vs CAD1.54B

13.30 US Bernanke testifies to Panel on Monetary Policy
14.00 US June Leading Indicators 0.0% vs 0.3%
16.00 US July Philadelphia Fed Survey 13.3 vs 18
16.30 US Fed’s Moskow speaks to Economists in Philadelphia
18.00 US Minutes of June 28 FOMC meeting

The Risk Today:

EurUsd remains strong, in 1.3760 � 1.3834 trading range, after having hit 1.3834 yesterday new record high. A return below 1.3750 and 1.3659 former resistances will put the actual positive trend on hold. Initial minor support holds 1.3786.

GbpUsd bullish trend remains intact. Channel top 2.0434 and 2.0500 resistances have been cleared. Cable is trading above the top of a developing ending diagonal triangle and going forward, upside would be 2.0568 (equally 1.9187 to 2.0132 advance) and 2.0706 trend top. Former 2.0500 resistance marks initial support. Market 2.0100 former trend resistance holds strong support. A break there will open the door back down to 2.0000 pivot point.

UsdJpy remains trading in 120.98 � 122.62 trading range. Renewed strength will focus on 124.15 late June high. A break toward 124.15 will reopen the way to 125.57 December 2002 high. Initial support holds 120.98 level. A break down 120.78 strong support may put 119.55 in sight.

UsdChf remains weak but consolidating after the yesterday volatile market range 1.1962 to 1.2051. On the recent downtrend, focus may shift on 1.1881 early December low and 1.1739 April 2005 trend supports. Former support 1.2234 marks resistance after initial resistance 1.2051 yesterday high.

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Resistance and Support:

By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland