Daily FX Market Outlook by AceTrader-14-7-2011

Market Review – 13/07/2011 21:26 GMT

Dollar tanks as Bernanke says Fed will provide additional stimulus if needed

The greenback fell sharply against its major counterparts as U.S. Federal Reserve Chief Ben Bernanke said the Fed would offer more stimulus measures if economic conditions deteriorate further. Dollar dropped further at NY closing after Moody’s placed U.S. AAA government bond rating n related ratings on review for possible downgrade. Usd/chf tumbled below previous record low of 0.8276 to a fresh lifetime low at 0.8174.

Fed Chairman Bernanke said in his testimony before the House Financial Services Committee that ‘the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support.’ However, Dallas Federal Reserve Bank President Richard Fisher opposed further monetary policy easing and said ‘does not personally see the benefit of more accommodation even if economy were to weaken further.’  
Breaking news came after New York close that Moody’s Investor Service warned U.S. may lose its AAA rating if lawmakers fail to increase its debt ceiling.  
Despite euro’s brief retreat to 1.3951 in Australia yesterday, renewed buying lifted the single currency and the pair ratcheted higher to 1.4111 in European morning due to active cross buying of euro vs sterling. Later, euro rose again from 1.4036 to 1.4193 in NY morning due to Bernanke’s dovish comments before stabilising.  
Although the greenback edged higher to 79.57 against the Japanese yen in Asian midday after early brief but steep fall to a near 4-month low at 78.49 in thin market conditions in Australia, renewed selling emerged and the pair ratcheted lower to 78.89 due to dollar’s weakness in NY morning.   
Earlier in Asia, when asked about the yen’s rise above 80, Japan’s FINMIN Yoshihiko Noda told reporters ‘I think the movement has been a little one-sided and I will closely watch markets today as well.’ Japanese Chief Cabinet Secretary Yukio Edano said ‘rapid yen moves undesirable; closely watching yen moves.’ These comments gave support to usd/jpy.  
Despite cable’s brief rise to 1.5990 in European morning, the British pound pared its gain and fell to 1.5907 after the release of U.K. jobs data as U.K. claimant count came in worse than expected at 24.5K vs expectation of 15K whilst U.K. unemployment rate and average earning were 7.7% in May and 2.1% respectively against an economist’s forecast of 7.7% and 2.0%. however, the pair rose strongly in NY morning due to Bernanke’s comments and rallied to 1.6121 in NY midday on dollar’s broad-based weakness.  
The commodity currencies also rallied against the greenback as aud/usd and nzd/usd rose sharply from 1.0579 to 1.0779 and from 0.8170 to 0.8386 respectively. Usd/cad tanked from 0.9668 to 0.9545. Spot gold also pierced through 1575.70 to a fresh record high at 1586.80 whilst silver rallied to 38.27.  
Data to be released on Thursday include:   
New Zealand GDP, Japan Tankan Manufacturing, Machine tools orders, EU HICP final, U.S. Jobless claims, PPI, PPI core, Retail sales, Retail sales less auto, Business inventories .