U.S. Dollar Down Slightly Ahead of Bernanke Testimony
The U.S. Dollar is down slightly overnight against most
major currencies as traders await Federal Reserve Chairman Bernankeâ€™s
semi-annual testimony before the House Committee on Financial Services.
Bernanke will be in the hot seat this morning as he tries to
convince Congress that the financial health of the economy is under control. In
addition, he will try to build public confidence in the Fedâ€™s upcoming exit
strategy. Bernankeâ€™s main job will be to explain how he is going to begin
lifting stimulus and raising interest rates without rocking the jittery
financial markets. He may also be asked to explain why he hiked the discount
rate last week and why this move should not be deemed monetary tightening.
While facing intense scrutiny from the panel, Bernanke will
reiterate the Fedâ€™s key positions that financial conditions are improving,
inflation is under control, unemployment is too high and that interest rates
are likely to remain low for an â€śextended periodâ€ť.
The Dollar may see benefits from either a dovish or hawkish
testimony. A dovish testimony by Bernanke is likely to be friendly for the
Dollar as it may increase demand for higher risk assets. A hawkish testimony
could trigger a rally in the Dollar because it will imply that the economy is
stable enough to warrant higher interest rates.
The EUR USD is trading better overnight. This move is most
likely position evening ahead of Bernankeâ€™s testimony. Concerns about Greeceâ€™s
ability to resolve its budget and debt issues are still having a major bearish
influence on the Euro. In addition, the record number of short positions
against the Euro are reluctant to let up on the selling pressure.
The GBP USD is trading slightly better this morning, but still
in a position to test the recent bottom at 1.5352. The charts are indicating
more downside potential is likely. Combined with the weak fundamentals, the
Pound remains one of the weakest currencies. Talk of a protracted recovery and
additional quantitative easing is likely to keep the pressure on the British
The direction of the USD CHF is up to the Euro. A weaker
Euro will trigger more upside movement in this pair as it will encourage the
Swiss National Bank to keep on providing liquidity through intervention. A
stronger Euro will take the pressure off the SNB to protect its export business
The USD JPY is likely to continue to fall if the Fed hints
at keeping interest rates low for a prolonged period of time. This news will
most likely keep pressure on higher risk assets as it will indicate the economy
is still weak. Traders are likely to buy the Japanese Yen for protection.
The commodity-linked Canadian Dollar is down overnight
because of weaker gold and crude oil prices. A dovish testimony by Bernanke
today could help the Dollar while sending gold and crude oil lower. This
scenario will trigger more upside movement in the USD CAD.
Falling demand for higher risk because of a stronger Dollar
today should put pressure on the AUD USD and NZD USD. Yesterdayâ€™s closing price
reversal top could trigger a short-term break in the Australian Dollar to .8823
to .8765. The reversal top in the NZD USD is likely to trigger a short-term
break to .6942 to .6910.
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