Bernanke is not Greenspan

EUR USD (1.2645)
Yesterday proved to have been the calm after the storm for the single currency. From the start of the European session on Thursday right into the FE this morning it ended up just floating around in a tight range, just below the mid $1.26 level.

For most of Thursday, the Bernanke words were still hanging like a cloud over the market, and traders found themselves just mulling over everything. In a way the dynamics of the Fed Chair’s testimony somehow created the impression that traders thought they were still dealing with Alan Greenspan where finding a clue in a message was an art on its own. It seems as if traders still need to come to terms with the idea that they do not need to go into semantics with Bernanke, but that they should rather focus on the economic data on which the Fed bases its decisions. Nevertheless, as the market participants were still digesting the future of Fed rate hikes they also had to come up with reasons to justify their euro buying. In this regard they even warmed up to the Fed Chief as they reckoned that he showed some ‘sensitivity’ towards emerging markets. Some even went so far as to say that he used the right words at the right to time to ‘save’ the emerging markets from a further melt down. Curiously, the stronger euro also brought concerns about the twin deficit to the forefront. Just a week ago when the dollar bull run was still intact traders referred to the capital inflows data, which easily covered the deficit and to the ongoing crisis in the Middle east.

While it stays above 1.2585, the euro remains in a neutral, but stable position. This also marks the first support ahead of 1.2490 (critical). To the upside, a break beyond 1.2665/70 would unleash further gains towards 1.2865.

USD JPY (116.80)
The current objective remains at 115.10 and thereafter at 113.60. The future of Fed rate hikes was also at the centre of the attention here yesterday. With a gloomy outlook what rate hikes are concerned in both countries, traders preferred to put more weight on the Fed Chair’s testimony. Both the latest BoJ minutes which drew attention to a change in monetary policy at a time when the economy is not that strong, and the OECD warning against rate hikes in Japan were largely shrugged off. The dollar just slipped back into its former consolidation, which raised the possibility that the recent strength was nothing but an upside false-break . Our bearish orientation, however, can only deal with minor corrections and for this reason our risk-limit is set tight at 117.10. Overhead, we expect to come across a stumbling block at 118.30.

EUR JPY (147.75)
The single currency explored the upside potential planned for it at 147.70 and swiftly moved beyond to fresh historical highs yesterday. The cross still appears to be full of life and we expect the upside strength to continue and to extent to 148.25 next. After the last mentioned point, the upside remains open for it to even push to 149.20, however, this marks the spot where a correction might be due. One can expect to run into supports at 146.75 and thereafter at 145.40 (critical).

EUR GBP (0.6840)
The current objective remains 0.6730. Nothing much has changed for the single currency and it just traded in a tight range yesterday. To the downside, we count on support at 0.6815/20. Any move up should not violate our 0.6875 risk-limit to the bearish orientation.

GBP USD (1.8495)
Yesterday’s rise in retail sales, mortgage lending and money supply in the UK got some traders all excited again and even boosted the expectation for a rate hike in August. With yesterday’s break beyond 1.8475, Cable has achieved short-term stability. This has now opened the door for further modest gains to 1.8610 and thereafter to 1.8775. The bullish orientation, however, can only stand small corrections and for risk-reward considerations, the limit must be set tight to 1.8425/35. Additional support comes in at 1.8325 for today.

AUD USD (0.7495)
Traders seemed to be caught between as sharp fall in metals and the prospect of a RBA rate hike expected for next month. The position is neutral and stable with upside potential to 0.7570, which represents the best near-term resistance for the moment. Beyond there we can expect to see 0.7635. We anticipate running into demand at 0.7465 while 0.7405 is critical.