Fed Chairman Ben Bernanke’s testimony seems to be fairly well-balanced. While acknowledging that “inflation pressures appear to have abated”, Bernanke said that the inflation won’t fall back as fast as the Fed is hoping is still his “predominant concern”. The Fed’s new forecasts are largely as expected; the forecast for growth this year was trimmed to 2.5%-3.0%, from 3%-3.25% last July. Inflation is expected to average 2%-2.25% this year before falling back below 2% next year, leaving it at a level the Fed would be comfortable with.
News and Events:
The Dollar extended losses after data showed foreign investors were net sellers of US securities for the first time in nearly two years. Dollar was also under pressure after data showing a surprise decline in US industrial output last month, a spike in US jobless claims last week and a sharp slide un US mid-Atlantic region manufacturing activity.
The unexpectedly big increase in US initial jobless claims to 357,000 last week, from 313,000 the week before, is probably weather-related. In particular the North-East and Mid-West have been hit by a number of severe winter storms over the past 10 days or so. Elsewhere, the unexpected jump in the Empire State manufacturing index to 24.4, from 9.1, looks promising. The improvement in the headline index is echoed in the more tangible factors like new orders, shipments and employment too.
Fed Chairman Ben Bernanke’s testimony seems to be fairly well-balanced. While acknowledging that “inflation pressures appear to have abated”, Bernanke said that the inflation won’t fall back as fast as the Fed is hoping is still his “predominant concern”. Translation: the tightening bias stays for now. On economic growth he admitted that the housing market had seen a substantial cooling that could still hit consumption and employment much harder; but at the same time suggesting that the effects of the housing slump had so far been isolated and that signs of stabilization in the market were now appearing. The Fed’s new forecasts are largely as expected; the forecast for growth this year was trimmed to 2.5%-3.0%, from 3%-3.25% last July. That leaves it in line with the consensus. Inflation is expected to average 2%-2.25% this year before falling back below 2% next year, leaving it at a level the Fed would be comfortable with.
The Yen rallied across the board following data showed Japan�s economy grew at a 4.8% annualized pace in the fourth quarter, strengthening expectations that the Bank of Japan may raise interest rates next week. UsdJpy dropped -0.76% at 119.40 and EurJpy -0.79% at 156.82. EurUsd, which hit a six-week high at 1.3173, eased back to 1.3134 after Bernanke�s comments. GbpUsd reversed most of Wednesday advance, closing at 1.9515 down -0.67% after having hit 1.9678 intraday high. UsdChf was lower again at 1.2352 -0.32%.
Today’s Key Issues:
Euro 10:00 GMT: Euro-zone Trade Balance December 2B vs 3.1B
US 13:30 GMT: January Producer Price Index -0.6% vs 0.9% (MoM) and 0.3% vs 1.1% (YoY), PPI ex-food & energy exp. 0.2% unchanged (MoM) and 1.8% vs 2% (YoY), January Housing starts 1600k vs 1642k, January Building Permits 1590k vs 1613K
US 15:00 GMT: February Michigan Consumer Sentiment 95 to 96 vs 96.9.
The Risk Today:
EurUsd went through 1. 3130 (61.8% retracement of the 1.3298-1.2865 decline) and is focusing on 1.3176 (61.8% retracement of the 1.3268 to 1.2865 decline). Support cuts in 1.3050, but only a break of the 1.2900 trend support would undermine the developing bullish theme. A break of 1.3176 would open 1.3298, the Jan 2 high.
GbpUsd reversed recent advance from 1.9403 to 1.9678. The broader bear threat is still active and break of either 1.9750 resistance (61.8% retracement of the 1.9917-1.9482 decline) or 1.9403 would mark the next key directional trend. A break of 1.9750 is required to confirm the return of the bull trend.
UsdJpy has cleared key support at 119.90 and tested 119.23 support (38.2% retracement of the 114.43-122.20 rally). This could pave the way for weakness towards 117.98. 119.23 mark the next downside objective.
UsdChf has cleared the 1.2376 and confirmed the head-and-shoulders top that has developed in recent weeks. Further weakness below the 1.2376 will open the door to 1.2309 (38.2% retracement of 1.1881-1.2574 advance). The next important support is 1.2260. Resistance is at 1.2480 Wednesday’s high.
Resistance and Support: