All eyes on Ben Bernanke

The market goes into Ben Bernanke’s semi-annual monetary report to Congress on a more neutral footing with regards to USD positioning, and this should open up new opportunity for USD bulls in the short term.

Still, the prospect of pushing back a touch more and retaining his own personal dovish bias (rather than adopt the more hawkish mantra of the FOMC collective) will keep positioning light ahead of the pre-prepared speech and all-important Q&A session just after.

We feel that traders will look to sell rallies in GBP/USD to 1.5200, and buy dips in USD/CAD in the 1.0350 to 1.0300 region. The latter could potentially get a boost to the upside if the new Governor of the Bank of Canada, Mr Poloz, downplays the line Mark Carney had coined, ‘some modest withdrawal will likely be required’. Still, it seems logical that the Fed chairman will not deviate dramatically from his recent speech in Boston in which he went out of his way to stress that a potential start to tapering did not mean a raising of the Fed funds rate, and the fact that the US ten-year bond is at 2.53%, down around three basis points from the Boston speech will please, as will the fact yields are well off recent high of 2.75%.

The market will also be very keen to hear if the chairman’s views on the economy have changed, with many feeling the Fed’s outlook is wildly optimistic, especially with the Q2 run rate around 0.8%, after a patch of softer data.

Gold will be in focus and the precious metal looks delicately poised either way; we sit in the neutral camp in the short term, and will let price dictate play. A break of $1255 or $1310 could see the start of a new trend, although our bias is to the downside.

Asian markets have had mixed day’s trade, with the ASX 200 up 0.1%, while China and Japan are both down 0.6%. The ASX 200 has been buoyed on a strong report from BHP, who out of the four key commodities (iron ore, petroleum, met coal and copper) only really missed on the petroleum line, while the others were solid. Good numbers from RIO and ILU also gave upside to a sector which is looking the most attractive for traders right now.

On a side-note, of the G10 currencies against the USD, the AUD seems to be getting the most love from the market; it has closed above the 21-day moving average (the first time since May 1), and the medium-term downtrend looks actually quite attractive for a best case move to 1.0370 (the base line of the ichimoku cloud).

China is in a better spot again with non-financial foreign direct investment gaining 20.1% to a near record $14.39 billion. In fact, the 20.1% advance is the largest increase in two years, with double digit gains seen in Japan, US and Europe. It has also been announced that the Chinese Commerce Ministry is looking to release measures to support exports and imports, although details are light. The Premier Li Keqiang also mentioned that the government will try to put measures in place to avoid wild fluctuations in economic growth, employment and inflation. One of the measures which has been talked about and which should support the AUD is the potential for a free trade pact with Australia to exist alongside New Zealand who has had one for some time.

With intra-day ranges lower in both the US and Asia, Europe looks once again to see a flat open. There certainly seems like there is room for expansion with Ben Bernanke speaking, while the Beige Book, housing starts and building permits will probably play second fiddle. Interestingly, while we saw another solid homebuilder sentiment report yesterday, today’s building permits number is expected to break the 1,000,000 level for the first time since July 2008.

Bank of America is the key earnings results, although IBM commands a 9.5% weight on the Dow, thus a good result will have positive ramifications on the Dow, but of course less so on the market cap weighted S&P 500. The tech giant has an excellent pedigree at beating on the bottom line, but not so strong on revenue, having missed on seven of the last eight. EBay and American Express will also be in play.

In Europe the key releases will be UK jobs and the BoE minutes, while the market will also pay attention to a EUR4 billion ten-year bund auction in Germany and six and twelve month bill auctions in Portugal. Cable therefore will be the most interesting currency and we have already seen fresh shorts being put on during Asia, having hit a high of 1.5169 in late US trade. There is much to explore in the BoE minutes, and the market will be keen to see whether Mark Carney favours QE or not. We sit in the camp that he is not an advocate yet, and there shouldn’t be too much new news with regards to forward guidance.

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