Forex Forecast: 5 Key Events (Bernanke On Financial Stability)

Federal Reserve Chairman Ben Bernanke delivered his prepared speech on Financial Stability to an attentive market Friday morning in Jackson Hole, Wyoming. In effect, the statement was the most complete review of the visibly fragile credit and financial markets since the liquidity crisis was triggered in earnest after the collapse of Bear Stearns. After the statement was absorbed by the market, a strong USDJPY rally was curbed a falling trendline on the lower time frame.

[B]
Bernanke Speech Highlights Concern Over Market Health, Little New Sentiment[/B]
Federal Reserve Chairman Ben Bernanke delivered his prepared speech on Financial Stability to an attentive market Friday morning in Jackson Hole, Wyoming. In effect, the statement was the most complete review of the visibly fragile credit and financial markets since the liquidity crisis was triggered in earnest after the collapse of Bear Stearns. In fact, the Central Banker made multiple references to the chaperoned sales of Bear to JP Morgan amid comments that were aimed at reassuring market participants that the central bank has taken considerable steps in its three responses to the difficulties: the easing of monetary policy; providing liquidity to financial firms; and stepping up the Fed’s role as a supervisor and regulator. However, despite their efforts, conditions have improved little since Bear Stearns’ failure; and the threat of Lehman Brothers folding and/or the potential need for the government to bail out Freddie Mac/Fannie Mae still stands as a significant threat. If either of these events takes place before the joint effort between the Fed Bank of New York and a number of private banks can make a proposed clearing body for credit derivatives, both the carry trade and the US dollar could be pummeled. After the statement was absorbed by the market, a strong USDJPY rally was curbed a falling trendline on the lower time frame. Elsewhere, the fear of another financial market shock led to a quick and dramatic drop in the carry-sensitive yen crosses.

[B]Bernanke Speaks on Financial Stability Outlook (Monday)[/B]
On Friday at 10:00 EDT, Federal Reserve Chairman Ben Bernanke will speak on financial stability at the Kansas City Fed’s annual symposium in Jackson Hole, WY. His commentary tends to be extremely market-moving for not only the greenback, but also for US Treasury and equity markets (and thus, the Japanese yen crosses). Given the uncertainty surrounding the health of US financial institutions, commentary on the financial markets will be watched closely and bearish sentiment by Mr. Bernanke could weigh heavily on risk-appetite. On the other hand, if Mr. Bernanke signals optimism that the US economy and financial sector can weather the storm, the US dollar and risky assets, in general, could gain.

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

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