USD Struggles Amid Bernanke Comments, Euro Eyes 1.3500

By David Song, Currency Analyst

Talking Points
  • U.S. Dollar: Fed Chairman Bernanke Strikes Dovish Tone Amid High Unemployment
  • Euro: ESM & EFSF To Run In Parallel, Head-and-Shoulders Top Negated
  • British Pound: Eyes 1.6000 Ahead of BoE Rhetoric

U.S. Dollar: Fed Chairman BernankeStrikes Dovish Tone Amid High Unemployment

The greenback struggled to hold its ground on Monday , with the Dow Jones-FXCM U.S. Dollar Index( Ticker: USDOLLAR ) giving back the overnight advance to 9,998, andthe reserve currency may face additional headwinds during the NorthAmerican trade should the developments coming out of theworld’s largest economy fuel expectations for additionalmonetary support. Indeed, Fed Chairman Ben Bernanke struck a dovishtone for monetary policy amid the ongoing weakness in the labormarket, and it looks as though the central bank head will keep thedoor open to expand the balance sheet further in an effort toencourage a stronger recovery.

As Mr. Bernanke continues to support an accommodative policy, it seems as though the central bank will endorse the zero-interest rate policy throughout 2012, but we may see a growing rift within the FOMC as Fed officials take note of the more robust recovery. As the economy gets on a more sustainable path, we should see the committee concluding its easing cycle this year, and the recent weakness in the USDOLLAR is likely to be short-lived as the index maintains the upward trend carried over from the previous month. In turn, we should see the reserve currency track higher going into April, and currency traders may turn increasingly bullish against the greenback as the fundamental outlook for the world’s largest economy improves.

Euro: ESM & EFSF To RunIn Parallel, Head-and-Shoulders Top Negated

The Euro rallied to 1.3328 following the dovish commentsfrom Fed Chairman Bernanke, and the single currency may continue toretrace the decline from the previous month as Europe policy makersincrease their effort to address the sovereign debt crisis. GermanChancellor Angela Merkel floated the idea of running the EuropeanFinancial Stability Facility in ‘parallel’ with theEuropean Stability Mechanism, while it seems as though the EuropeanCentral Bank will continue to carry out its easing cycle in 2012 inan effort to lift the region out of recession. Indeed, GoverningCouncil member Christian Noyer endorsed the ECB’snon-standard measures as the governments operating under the singlecurrency struggle to get their house in order, and the central bankmay continue to expand its balance sheet over the coming months asthe fundamental outlook for the region remains clouded with highuncertainty. As the EURUSD clears the 2/9 high (1.3320), we arescaling back out call for a head-and-shoulders reversal, and itlooks as though we will get another run at the 50.0% Fibonacciretracement from the 2009 high to the 2010 low around 1.3500 as thepair maintains the previous month’s range.

British Pound: Eyes 1.6000 Ahead ofBoE Rhetoric

The British Pound extended the advance from the previous week,with the GBPUSD advancing to a high of 1.5956, and the pair lookspoised to make another run at 1.6000 as market participantsincrease their appetite for risk. However, as the relative strengthindex breaks out of the downward trend carried over from theprevious month, the technical development instills a bullishoutlook for the sterling, and we may see the exchange rate continueto retrace the decline from back in November as market sentimentimproves. With Bank of England officials expected to speak thisweek, less dovish comments from the Monetary Policy Committeeshould prop up the pound over the near-term, but the central bankmay keep the door open to implement more quantitative easing in aneffort to encourage a stronger recovery. In turn, we may have anopportunity to play the range-bound price action in the GBPUSD, butthe recent strength in the sterling may gather pace going intoApril should the developments coming out of the U.K. dampenspeculation for more asset purchases.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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Related Articles: Weekly Currency Trading Forecast

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:00

10:00

Pending Home Sales (MoM) (FEB)

1.0%

2.0%

USD

14:00

10:00

Pending Home Sales (YoY) (FEB)

10.3%

USD

14:30

10:30

Dallas Fed Manufacturing Activity (MAR)

16.0

17.8

EUR

16:00

12:00

ECB President Mario Draghi Speaks on Euro Economy

GBP

20:45

16:45

BoE's David Miles Speaks on U.K. Economy

Currency

GMT

Release

Expected

Actual

Comments

NZD

21:45

Trade Balance (New Zealand dollars) (FEB)

153M

161M

Marks the first surplus for 2012, imports narrowed for the third month.

NZD

21:45

Balance (YTD) (New Zealand dollars) (FEB)

712M

621M

NZD

21:45

Exports (New Zealand dollars) (FEB)

3.93B

3.59B

NZD

21:45

Imports (New Zealand dollars) (FEB)

3.65B

3.43B

EUR

9:00

German IFO - Expectations (MAR)

102.6

102.7

Advances for the fifth consecutive month.

EUR

9:00

German IFO - Business Climate (MAR)

109.6

109.8

EUR

9:00

German IFO - Current Assessment (MAR)

117.0

117.4

USD

12:30

Chicago Fed National Activity Index (FEB)

--

-0.09

Lowest since November.
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2012/03/26/USD_Struggles_Amid_Bernanke_Comments_Euro_Eyes_1.3500.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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