stock indices are trading flat this morning ahead of the U.S. opening.
Investors seem reluctant to take a side ahead of todayâ€™s testimony by Fed
Chairman Bernanke. Todayâ€™s emphasis will be on jobs and the Fedâ€™s exit
strategy. Bernanke may be asked to explain how the Fed plans to withdraw
stimulus and raise interest rates without shocking the financial markets.
Dovish comments by Bernanke are likely to decrease demand for higher risk
assets while putting pressure on equities. Hawkish comments, or hints at a rate
hike this year could also trigger the start of a sizeable correction. The only
thing investors can count on today is volatility.
Trading has been mixed overnight in the Treasury markets
following a strong rally on Tuesday. Yesterday, investors bought T-Bonds and
T-Notes after the release of less than stellar U.S. economic reports. Today,
traders will react to any comments by Bernanke regarding interest rates. Talk
of tightening will pressure March Treasury Bonds and March Treasury Notes.
If Bernankeâ€™s testimony helps the Dollar then look for more
pressure on Gold and Crude Oil as traders will begin dumping higher risk
assets. April Gold could see a technical bounce following a test of $1088.00 to
$1077.80.April Gold could feel the most
downside pressure as the charts indicate plenty of room to the downside with
75.29 to 73.99 the most likely targets.
A surprise drop in consumer confidence in the U.S.
and an unexpected fall in German business confidence sent the Dollar higher
against most major currencies while the Euro weakened. Both reports indicate
that there are concerns about the global economic recovery.
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 March Euro 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 numbers of short traders betting
against the Euro have been reluctant to let up on the selling pressure.
The March British Pound 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 Pound.
The direction of the March Swiss Franc 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 March Japanese Yen is likely to continue to rally 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
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 downside movement in the March Canadian Dollar.
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