U.S. Dollar weaker ahead of Data, Bernanke Talk

The U.S. Dollar is trading lower against most major Forexmarkets ahead of today’s Consumer Price Index, Retail Sales and BusinessInventories Reports. In addition, investors are awaiting the testimony of FedChairman Bernanke.

The U.S. Dollar is trading lower against most major Forexmarkets ahead of today’s Consumer Price Index, Retail Sales and BusinessInventories Reports. In addition, investors are awaiting the testimony of FedChairman Bernanke.

Today’s Consumer Price Index report is expected to showlittle or now inflation for the month. February Retail Sales are expected toshow a rise of 0.3 percent after a 0.1 percent rise in January. If one takesout auto sales, the report should show a rise of 0.8 percent. This numbershould be the market mover today. Business Inventories are forecast to beunchanged in January after a slight decline in December.

Fed Chairman Fed Bernanke testifies before the JointEconomic Committee on the economic outlook at 9am CT. Traders are expectingBernanke to say the economic recovery is taking hold but that the recoveryremains sluggish. One key to his speech will be his commentary on the U.S.unemployment situation. Most analysts expect him to say that the recovery isnot yet strong enough to drastically improve employment.

In addition to the weak employment market, Bernanke isexpected to say that the U.S.still faces problems with stagnant wages, weak home values, rising foreclosuresand hard-to-get credit.

Bernanke’s biggest problem remains how to sustain therecovery after massive government stimulus ends later this year. To help keepthe economy on the path to recovery, the Fed continues to pledge low interestrates for an “extended period”. Traders will be looking to see if he hints theFed is getting ready to alter this phrase in any way. Some feel the Fed maybegin to hint at a more specific time period when rates are likely to begin torise. Analysts have been critical of the phrase “extended period” latelybecause of its ambiguity.

Volatility could return to the Forex markets today afterseveral days of inactivity. The past few days, traders have had no major U.S.reports to react to, but today’s slew of economic report should have an impactespecially if Bernanke give clear signals that interest rates are set to changesooner than previously expected.

Greecenews will continue to dominate the news regarding the Euro. The week startedwith a pledge by the European Union to provide loans to Greece. OnTuesday Greece auctionedT-Bills and the news today is that Moody’s warned of a ratings downgrade for Greece.

Some traders believe that Greece is in a death spiral andthat no amount of aid will be able to stop the decline in the economy and itsnegative effect on the Euro. Even after Tuesday’s favorable auction, tradersare still unsure as to how much Greecewill need to finance its economy over the short-run. Most feel that Greece willhave to tap some of the money pledged by the EU to run the government. How muchthey borrow and how often they do it will dictate the direction of the Euro. Atthis time, hedge funds continue to stand ready to sell the Euro on rallies.Until something happens to force these traders to cover their massive shortpositions, continue to look for downside pressure.

The British Pound is trading better overnight. Recentimprovements in the economy have been helping to boost the Sterling, but gains have been capped byconcerns regarding the upcoming May 6th election. Traders seem to be hesitantto drive this market higher until either political party provides a clear planas to how it will handle the current budget deficit.

The USD CHF is trading higher following early overnightweakness. Talk is circulating that the Swiss National Bank intervened to weakenits currency. Until the Euro is on a clear path to recovery, continue to lookfor the SNB to manipulate the value of its currency from time to time. The SNBis trying to weaken the Swiss Franc in order to protect its important exportmarket.

Demand for higher risk is helping to boost the USD JPY. Firmequity markets overnight are helping to encourage Japanese investors to movemoney into the higher yielding U.S.stock markets.

Stronger gold and crude as well as the outlook for higherinterest rates helped the USD CAD reach a new low for the year. Canadianfinancial markets indicate that traders are betting that there is a 50%probability of an interest rate hike by the Bank of Canada on June 1st. Previousreports indicated that traders had been looking for a rate hike on July 1.

The AUD USD is recovering overnight following a two-daysetback triggered by weaker than expected mortgage approval reports. Traderslightened up positions as this report signaled potential problems in thehousing market in the future. The current move has to prove itself by takingout the previous main top at .9387.

The NZD USD is also trading higher, but still glued to a key50% area at .7124. This price is acting as a pivot. The Kiwi could firm if themarket can establish support at this price. The charts indicate the potentialfor a massive rally should this pair close over .7200.

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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