USD: BearishBased on the tone of Ben Bernanke’s semi-annual testimony in front of the U.S. Congress yesterday, the Federal Reserve is in no rush to withdraw stimulus. He mentioned that they’d like to see some improvements in economic data, particularly in the employment sector, before considering reducing their asset purchases. According to him, the benefits of monetary policy stimulus outweigh the risks for now, which suggests that the expected tapering off of bond purchases won’t take place anytime this year. This statement had a muted effect on most dollar pairs but it was enough to keep further rallies at bay, hinting that traders could be changing their minds about buying up the dollar. Bernanke has another speech during today’s New York session, along with the release of U.S. durable goods orders data and pending home sales figures.
For now, yen pairs are still on neutral ground as traders await Abe’s nomination of the next central bank head. USD/JPY has been moving sideways around the 91.50 region and consolidating even more tightly. If Abe decides to nominate Kuroda, who is a known yen bear, we could see USD/JPY break to the upside. Otherwise, the yen could resume its rally and break below 91.00. Japan is set to release manufacturing production and industrial production during the latter half of the U.S. session.
There is still no clear indication of who the Italian election winners are but it seems that markets are pricing in the idea of a Berlusconi-Bersani coalition. This could be bearish for the euro in the longer run as political stalemates like these tend to lead to tension and uncertainty, making it more difficult to implement fiscal reforms. As a result, European stocks sold off reflecting investors’ uneasiness about the potential outcome of the Italian elections. Only medium-tier reports are due from the euro zone today, including the German GfK consumer confidence figure, which aren’t expected to have a huge impact on euro pairs’ movement. Keep an eye out for any updates on the Italian elections to figure out whether EUR/USD could break below 1.3050 or bounce back up to 1.3300.
There is a long-term bearish sentiment for the pound as the BOE has already expressed its willingness to implement further quantitative easing. However, it seems that traders have already closed off some of their positions and booked profits around the 1.5100 mark. The second estimate for the UK Q4 2012 GDP is set for release today and, although most analysts aren’t expecting any revisions from the 0.3% contraction reported, a downside surprise could put pound pairs back on their downtrend. Business investment data and a speech from monetary policy committee member Bean are also on tap for today.
Switzerland’s employment level managed to hold steady at 4.12 million for Q4 2012, higher than the estimated dip to 4.11 million. This caused a slight rally for their yesterday but it appears traders are still cautious about buying up the franc. The UBS consumption indicator and KOF economic barometer are due today and strong figures could usher in further demand for the franc.
Commodity Currencies (AUD, CAD, NZD): Bullish
AUD/USD, USD/CAD, and NZD/USD are trading right on significant inflection points and are showing signs of a potential reversal since the selloff among commodity currencies might be already overdone. AUD/USD is finding support at the 1.0200 major psychological level with a bullish divergence and oversold stochastic on the daily time frame while USD/CAD formed a doji also on the daily time frame. NZD/USD, on the other hand, has already broken below the 0.8300 handle but appears prime for a retracement.
By Kate Curtis from Trader’s Way