U.S. Dollar falls as Bernanke says Interest Rates to Remain Low for Extended Period

The U.S. Dollar is trading lower at the mid-session following an early morning break triggered by Fed Chairman Bernanke’s comment that interest rates would remain low for an “extended period”.

The U.S. Dollar is trading lower at the mid-session following an early morning break triggered by Fed Chairman Bernanke’s comment that interest rates would remain low for an “extended period”. Bernanke was basically reiterating the Fed’s lower interest rate stance which has been in place for several months.

The EUR USD rallied after Bernanke’s statement despite on-going turmoil in Greece triggered by a labor strike. Technically, this market is holding support at a .618 retracement level at 1.3483 and a main bottom at 1.3443. Last Friday’s confirmed closing price reversal bottom pattern is still intact. The charts suggest that regaining 1.3656 will be a sign of strength, but it will take a trade through the old main top at 1.3788 to turn the main trend to up.

The GBP USD is trading inside of yesterday’s range and is basically treading water today. The British Pound had almost no reaction to Bernanke’s comment about the future of U.S. interest rates. Investors instead have chosen to focus on the problems in the U.K. economy, the growing budget deficit and Friday’s final fourth quarter GDP.

The prospect of lower U.S. interest rates for an “extended period” helped weaken the USD JPY initially, but the Dollar recovered versus the Yen as the market approached the mid-point of the session. Technical factors could be driving this market up as fresh selling failed to accelerate the break to the downside following a penetration of a .618 retracement level at 89.92. Intra-day support has been established at this price however, regaining the 50% level at 90.34 will be needed to show strength.

The stronger Euro is diminishing the chances of another intervention by the Swiss National Bank which is helping to pressure the USD CHF. So far today, this pair is trading inside yesterday’s range which could be indicating impending volatility. Last Friday’s closing price reversal top pattern remains intact, which makes this market vulnerable to a short-term correction over the next 2 to 3 days. Look for this move to continue to develop as long as the main top at 1.0897 remains valid.

Bernanke’s comments about the U.S. economy and the direction of interest rates helped weaken the U.S. Dollar while triggering short-covering rallies in Gold and Crude Oil. The pick-up in demand for commodities is putting pressure on the USD CAD after this pair completed a short-term retracement to a 50% price at 1.0574. Baring any major changes in Gold and Crude Oil, traders should expect to see downside pressure build into the close.

Stronger equity markets as well as overall demand for higher risk commodities are helping to boost the AUD USD and NZD USD. Although both markets are in downtrends, further direction will be dictated by investor demand for higher yielding assets. Today traders seem to be trying to erase last week’s loss that was triggered by the Fed’s hike in the discount rate. This is because Bernanke has convinced investors that it did not mean a tightening of monetary policy and that interest rates would remain low for an “extended period”.

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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