US Dollar Likely To Turn Higher As Markets Digest Bernanke Comments

By Ilya Spivak, Currency Strategist

Talking Points
  • US Dollar to Recover as Markets Digest Post-FOMC Bernanke Commentary
  • Euro May Turn Lower as German CPI Drop Stokes ECB Rate Cut Outlook
  • NZ Dollar Gains After RBNZ Rate Decision, Markets Dismiss Bollard Threat

The US Dollar (ticker: USDollar ) declined overnight, with markets seeming toseize on comments from Fed Chairman Ben Bernanke sayingpolicymakers were “prepared to do more” to help theeconomy if growth faltered, singling out additional QE as still“on the table”. Taken in isolation, the statementseemed to project the likelihood of another expansion of thebalance sheet, weighing on the greenback amid returning dilutionfears. This kneejerk reaction doesn’t seem to have stayingpower however as markets digest the remainder of Bernanke’scommentary.

Keeping QE3 “on the table” makes sense. After all, it would unreasonable to expect the Fed to do nothing if growth were to falter anew. Meanwhile, Bernanke made it clear that additional asset purchases were not favored, saying it would be “very reckless” to allow higher inflation for the sake of reducing unemployment. The central bank chief also added that the pledge to keep rates low through late 2014 was contingent on economic data and subject to revision if conditions were to warrant it (which presumably means rates can rise faster than the Fed currently expects). Coupled with upgraded growth, employment and inflation forecasts, this hardly seems to foreshadow additional stimulus in the pipeline at least over the near term.

The New ZealandDollar outperformed after the RBNZ kept interest unchanged as expected . Central bank Governor Alan Bollard said thedomestic economy was showing signs of recovery and predicted growthwould pick up steam as reconstruction efforts in Canterburyfollowing sharp earthquakes that rocked the area in February andJune of last year. Here too however, the markets seemed to settlefor half of the story, leaving room for a reversal. Bollardexplicitly warned that if Kiwi remains strong despite waningcommodity prices, the RBNZ will need to “reassess” itsposture, giving the statement a discernibly dovish tone.

German Consumer PriceIndex figures headline the economic calendar inEuropean hours, with expectations calling for the annual inflationrate to decline to 2 percent in April, marking the lowest readingin 14 months. Taken against the backdrop of modestly dovishcommentary from ECB President Draghi yesterday and deeplydisappointing Eurozone PMI numbers released earlier in the week, theoutcome may weigh on the Euro as rate cut expectations build.

Draghi said risks to inflation were broadly balanced and stressed that the ECB was prepared to do what was needed in either scenario. Considering the ECB chief also predicted that price growth will remain above 2 percent this year, the drop on the German CPI reading squarely to that level may begin to drive speculation that the central bank will need to ease policy further.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

Reserve Bank of New Zealand Rate Decision

2.50%

2.50%

2.50%

23:01

GBP

Nationwide Consumer Confidence (MAR)

53

43

44

0:00

AUD

Conference Board Leading Index (FEB)

0.0%

-

1.0% (R-)

1:00

AUD

DEWR Internet Skilled Vacancies (MoM) (MAR)

0.8%

-

0.3% (R+)

4:30

JPY

All Industry Activity Index (MoM) (FEB)

-0.1%

-0.2%

-1.0%

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:00

EUR

Italian Business Confidence (APR)

92.1

92.1

Low

8:30

GBP

BBA Loans for House Purchase (MAR)

-

33103

Low

9:00

EUR

Euro-Zone Business Climate Indicator (APR)

-0.3

-0.3

Low

9:00

EUR

Euro-Zone Economic Confidence (APR)

94.2

94.4

Medium

9:00

EUR

Euro-Zone Consumer Confidence(APR F)

-19.8

-19.8

Medium

9:00

EUR

Euro-Zone Industrial Confidence (APR)

-7.0

-7.2

Medium

9:00

EUR

Euro-Zone Services Confidence (APR)

-0.5

-0.3

Medium

10:00

GBP

CBI Reported Sales (APR)

-4

0

Low

12:00

EUR

German Consumer Price Index (MoM) (APR P)

0.1%

0.3%

Medium

12:00

EUR

German Consumer Price Index (YoY) (APR P)

2.0%

2.1%

High

12:00

EUR

German CPI - EU Harmonised (MoM) (APR P)

0.1%

0.4%

Medium

12:00

EUR

German CPI - EU Harmonised (YoY) (APR P)

2.2%

2.3%

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3181

1.3272

GBPUSD

1.6102

1.6244

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya , e-mail ispivak@dailyfx.com . Follow me on Twitter at @IlyaSpivak

To be added to Ilya 's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com
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/euro_open/2012/04/26/US_Dollar_Likely_to_Turn_Higher_as_Markets_Digest_Bernanke_Comments.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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