U.S. Dollar Down Slightly Ahead of Bernanke Testimony

The U.S. Dollar is down slightly overnight against most major currencies as traders await Federal Reserve Chairman Bernanke’s semi-annual testimony before the House Committee on Financial Services.

The U.S. Dollar is down slightly overnight against most major currencies as traders await Federal Reserve Chairman Bernanke’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 Fed’s upcoming exit strategy. Bernanke’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 Fed’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 “extended period”.

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 EUR USD is trading better overnight. This move is most likely position evening ahead of Bernanke’s testimony. Concerns about Greece’s ability to resolve its budget and debt issues are still having a major bearish influence on the Euro. In addition, the record number of short positions against the Euro are reluctant to let up on the selling pressure.

The GBP USD 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 USD CHF 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 through intervention.

The USD JPY is likely to continue to fall 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 protection.

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 upside movement in the USD CAD.

Falling demand for higher risk because of a stronger Dollar today should put pressure on the AUD USD and NZD USD. Yesterday’s closing price reversal top could trigger a short-term break in the Australian Dollar to .8823 to .8765. The reversal top in the NZD USD is likely to trigger a short-term break to .6942 to .6910.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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