USD Spins Stronger As Bernanke Speaks Before Congress

DailyFX

THE TAKEAWAY: Bank of England Minutes show 9-0 vote to maintain current policy stance > Bernanke reiterates previous statements and states that asset purchases are not on a “preset course”

The two significant events today relate to the Bank of England (BoE) July Minutes and Fed Chairman Ben Bernanke speaking before Congress. First, note that the July BoE meeting was the first under the new leadership of Mark Carney. The Minutes show a 9-0 decision to maintain the BoE’s current monetary policy, in contrast to previous votes of 6-3 to maintain policy under Mervyn King. The fading dove presence in the MPC spurred a sharp gain in the sterling.

Bernanke’s report to Congress – the second significant event—reiterated his recent statements about the Fed maintaining an accommodative policy stance for the foreseeable future. There were some interesting statements during the Q&A session at 14:00 GMT. Bernanke stated that about 2.0% of the current 7.6% unemployment rate constitutes cyclical unemployment. Bernanke also commented that the long-term unemployment rate is around 5.6% and that “an unemployment rate somewhere in the 5s [is achievable].” The defense of the 2.0% inflation goal was also reiterated.

Global markets trade moderately bullish today. Treasuries reacted especially strong to Bernanke’s statements. 10YR government bond yields trade as follows: US -5.0bps (-1.97%) to 2.481%; Germany -0.8bps (-0.51%) to 1.541%; Spain +4.4bps (+0.92%) to 4.715% at the time of writing.

Turning to commodities, precious metals are sharply lower while base metals trade mostly higher: WTI -0.02%; Brent +0.25%; Gold -1.28%; Silver -3.16%; LME Copper +1.17%; COMEX Copper -2.10%; Shanghai Copper +0.52% at the time of writing.

Equities continue to trade strong from developed markets to EM: S&P +0.24%; Euro Stoxx +0.61%; FTSE +0.24%; Nikkei +0.11%; Hang Seng +0.28%; Bovespa +0.92%; Sensex +0.49% at the time of writing.

In FX markets, dollar strength became evident in the moments before Bernanke’s Q&A session began. The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) gains +30 (+0.27%) to $10826 at the time of writing.

AUDUSD 15-minute Chart: July 17, 2013

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USD_Spins_Stronger_As_Bernanke_Speaks_Before_Congress_body_Picture_4.png, USD Spins Stronger As Bernanke Speaks Before Congress

Charts Created using Marketscopeprepared by Kevin Jin

The AUDUSD swung strongly higher by roughly +70 pips shortly after the release of Bernanke’s statements for his congressional testimony at 12:30 GMT (8:30 EDT on chart above). The pair reached as high as $0.9291 before reversing and heading lower ahead of Bernanke’s Q&A session.

GBPUSD 15-minute Chart: July 17, 2013

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USD_Spins_Stronger_As_Bernanke_Speaks_Before_Congress_body_Picture_3.png, USD Spins Stronger As Bernanke Speaks Before Congress

Charts Created using Marketscopeprepared by Kevin Jin

The sterling is one of the few major currencies trading stronger than the USD today. The gains occurred after the release of the BoE Minutes which show less dovish sentiment than under Former Governor Mervyn King.

EURUSD 15-minute Chart: July 17, 2013

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USD_Spins_Stronger_As_Bernanke_Speaks_Before_Congress_body_Picture_2.png, USD Spins Stronger As Bernanke Speaks Before Congress

Charts Created using Marketscopeprepared by Kevin Jin

The EURUSD is down -0.40%, hanging right around the $1.3100 level at the time of writing. The gains in the EURUSD which occurred immediately after the release of Bernanke’s prepared statements were quickly eclipsed by subsequent declines prior to the Q&A session.

USDJPY 15-minute Chart: July 17, 2013

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USD_Spins_Stronger_As_Bernanke_Speaks_Before_Congress_body_Picture_1.png, USD Spins Stronger As Bernanke Speaks Before Congress

Charts Created using Marketscopeprepared by Kevin Jin

The USDJPY made strong bilateral moves, nearing both the ¥99.00 and 100.00 marks in trading today. The pair found support at 99.03 roughly one hour following the release of Bernanke’s prepared statements and continued to climb net +60 pips higher to 99.63, where it trades at the time of writing.

--- Written by Kevin Jin, DailyFX Research

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