Bernanke Speech Set to Create Heavy Volatility

The marketplace was relatively quiet yesterday, despite a positive Italian ten-year bond auction which signaled to investors an improving economic situation in the euro-zone. Today, the main piece of news is likely to be an eagerly anticipated speech from Fed Chairman Bernanke. Speculations that Bernanke will hint at possible new steps to boost the US economic recovery today have boosted higher yielding assets in recent weeks. Should there be any mention of quantitative easing today, riskier assets, like the euro, crude oil and gold, could see major gains as a result.

Forex Market Trends

Daily Trend down down down up down down
Weekly Trend down down down up down up
Resistance 1.2600 1.5899 79.35 0.9705 1.0399 0.8022
1.2553 1.5847 78.98 0.9659 1.0350 0.7974
1.2524 1.5815 78.71 0.9631 1.0319 0.7945
Support 1.2476 1.5763 78.30 0.9587 1.0276 0.7898
1.2447 1.5732 78.06 0.9559 1.0243 0.7869
1.2400 1.5680 77.65 0.9513 1.0192 0.7821

Economic News

USD – Dollar Range Trades before Bernanke Speech

The US dollar spent most of the day yesterday range trading against its main currency rivals, as investors were hesitant to open new USD positions before a key policy speech from Fed Chairman Bernanke. The USD/JPY dropped close to 20 pips during the European session to trade as low as 78.48. A slight upward correction later in the day brought the pair back to the 78.55 level. Against the Canadian dollar, the greenback fell 15 pips, eventually reaching the 0.9902 level.

Today, all eyes will be on a speech from Fed Chairman Bernanke, scheduled to take place at 14:00 GMT. Analysts appear to be divided in their predictions about whether there will be any mention of new steps from the Fed to boost the US economic recovery. If Bernanke does mention a new round of quantitative easing, the dollar could take significant losses as investors shift their funds to higher yielding assets. That being said, given that US economic news has been generally positive in recent weeks, the Fed may hold off on any major announcements. In such a case, the dollar could recoup some of its recent losses.

EUR – Risk Taking Gives EUR a Mild Boost

Expectations that the European Central Bank will soon unveil plans to stimulate economic growth in the euro-zone helped keep the common-currency bullish during trading yesterday. Still, investors were largely hesitant to open new positions before a potentially significant US policy speech later today. The EUR/USD advanced more than 25 pips during the European session to trade as high as 1.2562. Against the Australian dollar, the euro was up close to 30 pips for the day, eventually peaking at the 1.2158 level.

As markets get ready to close for the weekend, the euro is likely to see significant volatility following a speech from US Fed Chairman Bernanke, scheduled to take place at 14:00 GMT. If Bernanke refrains from any mention of quantitative easing, or other steps to boost the US economic recovery, higher-yielding assets like the euro could take heavy losses as a result. At the same time, with the ECB potentially getting ready to announce its own economic growth measures, any euro losses could be limited.

Gold – Gold Takes Slight Losses but Remains Bullish Overall

After gaining close to $8 an ounce during the first half of the day yesterday, the price of gold turned bearish during afternoon trading amid concerns that the Span’s debt issues may be bigger than originally thought. Still, the precious metal spent most of the day trading around the $1656 level, well within reach of its recent 4 ½ month high.

Today, the price of gold may see a fair amount of volatility before markets close for the weekend. With the Fed Chairman set to give a major policy speech, traders will want to note the direction the US dollar takes throughout the day. Any bullish activity from the greenback could result in the price of gold turning bearish.

Crude Oil – Crude Oil Extends Bearish Trend

The price of crude oil fell by over $1 a barrel yesterday, after a tropical storm in the US spared oil refineries from major damage. In addition, a higher than expected crude oil inventories figure from earlier in the week signaled that demand in the US may be decreasing. The price of crude fell as low as $94.22 by the end of European trading, down from a high of $95.57.

Turning to today, oil could see additional losses if Fed Chairman Bernanke refrains from outlining concrete steps to stimulate economic growth in the US during a speech set to be delivered at 14:0 GMT. If investors shift their funds to safe-haven assets as a result of the speech, the USD could see upward movement which may lead to oil extending its current downward trend.

Technical News

The Williams Percent Range on the weekly chart is approaching the overbought zone, signaling that a downward correction could occur in the coming days. This theory is supported by the daily chart’s Slow Stochastic, which has formed a bearish cross. Going short may be the wise choice for this pair.
While the Williams Percent Range on the weekly chart has crossed into the overbought zone, most other long term technical indicators place this pair in neutral territory. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.
The Bollinger Bands on the weekly chart are beginning to narrow, signaling that a price shift could occur in the near future. In addition, the daily chart’s Williams Percent Range is approaching the oversold zone, indicating that the price shift could be upward. Opening long positions may be the best choice for this pair.
The Relative Strength Index on the daily chart is approaching oversold territory, signaling that an upward correction could occur in the near future. Furthermore, the Slow Stochastic on the same chart has formed a bullish cross. Going long may be wise strategy for this pair.

The Wild Card

A bullish cross on the daily chart’s Slow Stochastic indicates that this pair could see upward movement before markets close for the weekend. Furthermore, the Williams Percent Range on the same chart has dropped into oversold territory.
Forex traders may want to go long in their positions today.

Written by