NEWS / Monetary Policy

Dollar fell sharply as Mr. Bernanke point to softer inflation

By Marc Spaelti - ACM Senior Trader Yesterdays News and Events: The dollar fell sharply on Wednesday after Mr. Bernanke said central bank expects core inflation to decline as the economy slows. After that statement Eurusd jumps from yesterday low 1.2450 to 1.2620 high (early this morning), it nicely test our 1.2470 support and went through 1.2560 short term resistance. Fed??™s Chairman said he expects US inflation to fall in the coming quarter; this made market believe the Fed will not raise rates next month. His speech echoed the tone of the Fed??™s latest policy statement, which pointed to inflationary risks but said that a slowing of economic growth was likely to moderate such price pressures over time. In the other hand, US CPI rise 0.2% in June and 4.3% YoY as expected. This is positive for another rate hike in august, extending its run of 17 straight rate rises. Question is and remains; hike or no hike in August? In Addition, June Housing Starts fell 5.3% to 1850k from a revised May 1953k. Economists had expected June Housing Starts so decline to 1900k. Gbpusd went up to 1.8424 and is already trading higher today. Usdjpy pulled back to 116.65 intraday low and stabilized at closing around 116.82. Market has been trading down to 116.56 this morning. To be highlighted, Eurchf recovered from July lowest 1.5591 (last Monday) to 1.5700 and set early today new July highest at 1.5723. Todays Key Issues: It will be a busy day, starting with June GB Retail Sales expected 0.4% MoM (vs 0.5%) and 2.9% YoY (vs 4.0%) and GB M4 money Supply and Lending, GB BBA net Consumer Credit and Net Mortgage Lending. Main focus will be at 14:30 CET with US weekly Jobless Claims consensus 325K. At 16:00 CET Mr. Bernanke testifies at semi-annual House Financial Services Committee. His is expected to signal the Currency market whether higher US interest rates will keep supporting the dollar in the near term. In the same time is June Leading Indicators expected 0.2% vs -0.6%. Closing of the day will be with Japan May All Industry Activity Index, consensus -0.4% vs 1.3%. The Risk Today: All attentions are pointed to today US figures. This morning and early afternoon, do not expect the market to move out following ranges: Eurusd 1.2560 ??“ 1.2620, Usdjpy 116.40 ??“ 117.00 and Gbpusd 1.8400 ??“ 1.8480. We can easily continue yesterday Dollar bearish mood and broke up Eurusd short term resistance 1.2620 and test next level 1.2700. If there, the target will be 1.2850 resistance. In the other hand, there is a real risk to test again 1.2450 short term support and open the way to 1.2300 support. Usdjpy is trading near its short term support 116.50 and can break down to 115.60 and retest early July Low 114.00. Gbpusd range is now 1.8380 to 1.8460, it can broke up this and take the way to test 1.8540 (July high) and pave the way to 1.8650. Supports are 1.8330 and 1.8220. Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.2850 T 1.8650 S 120.00 T 1.2740 T 1.2700 S 1.8530 S 118.60 M 1.2680 K 1.2620 P 1.8460 M 117.75 P 1.2525 M 1.2600 1.8440 116.80 1.2470 1.2470 M 1.8300 S 116.62 M 1.2300 M 1.2310 K 1.8176 M 115.50 S 1.2260 K 1.2103 S 1.8090 S 113.85 S 1.2240 S S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot