This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
On the economic front we had CPI up 0.5% and slightly ahead of estimates, while industrial production and the housing market index exceeded expectations. Surprisingly, the US dollar remained relatively subdued as investors position themselves for Fed chief Ben Bernanke’s testimony ahead to Congress.
Following Mr Bernanke’s comments at the Q&A session last week, a lot of analysts continue to feel he will sound the same tone regarding the Fed remaining accommodative for the foreseeable future. However, the recent recovery in data is likely to be acknowledged and in turn may result in an adjustment to asset purchases.
With the US dollar index (DXY) dropping below 82.50 through US trade, we are starting to feel the market might be a bit too short heading into the testimony. This tends to result in a squeeze higher, with a high likelihood that Mr Bernanke won’t be as dovish as the market expects.
AUD/USD has been one of the best performers in the risk space over the past 24 hours, in a move triggered by yesterday’s RBA meeting minutes. The pair has lunged to $0.925 and looks like it is headed to $0.93 in the short term. The region between $0.93-0.9320 is where we feel the pair might encounter resistance in the short term. Mr Bernanke’s testimony might be a trigger for a USD recovery and in turn an AUD/USD fall.
USD/JPY dropped to 98.89 as the USD lost ground and hasn’t reacted much to the BoJ’s monetary policy meeting minutes. GBP/USD pushed higher overnight but has since pulled back ahead of a fairly busy day on the economic recovery. At 18:30 AEST today we get the BoE minutes, UK jobs report, while as mentioned Ben Bernanke will dominate traders’ thought process. Selling into strength might be the preferred strategy, particularly after the dovish statement from the meeting. EUR/USD brushed off a disappointing German ZEW economic sentiment reading (36.3 versus 39.8 expected) and managed to print a high of 1.318. There isn’t much on the eurozone’s economic calendar today but investors should keep an eye on Germany’s 10-year bond auction.