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Dollar Awaits Bernanke Speech

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Top Stories

  • Dollar goves up gains v. yen and franc ahead of Jackson Hole
  • UK GDP in line providing relief for cable
  • Nikkei up 0.29% Europe off -0.76%
  • Oil just below $85/bbl
  • Gold at $1786/oz. up $25

Overnight Eco

  • JPY National Consumer Price Index Ex-Fresh Food (YoY) (JUL) -0.6% vs. -0.1%
  • JPY National Consumer Price Index Ex Food, Energy (YoY) (JUL) 0.1% vs. -0.1%
  • JPY National Consumer Price Index (YoY) (JUL) 0.2% vs. 0.0%
  • CHF KOF Swiss Leading Indicator (AUG) n/a
  • GBP Gross Domestic Product (QoQ) (2Q P) 0.2% vs. 0.2%
  • GBP Gross Domestic Product (YoY) (2Q P) 0.7%

Event Risk on Tap

  • USD Gross Domestic Product (Annualized) (2Q S) expected at 1.1%
  • USD Gross Domestic Product Price Index (2Q S) expected at 2.3%
  • USD Core Personal Consumption Expenditure (QoQ) (2Q S) expected at 2.1%
  • USD Personal Consumption (2Q S) expected at 0.2%
  • USD U. of Michigan Confidence (AUG F) (AUG F) expected at 56.3

Price Action

  • USD/JPY back below 77.00 ahead of Jackson Hole
  • AUD/USD trades up to 1.0500 on mild bid
  • GBP/USD rallies back to 1.6350 on relief over GDP
  • EUR/USD back to 1.4450

A relatively quiet night in early European trade today, marked by some dollar weakness ahead of the speech by Chairman Bernanke from Jackson Hole Wyoming at 1400 GMT later today. The dollar has unwound much of yesterday's gains versus the low yielders on fears that the Fed may be more dovish than originally thought.

USD/JPY dropped through the 77.00 barrier while USD/CHF fell below .7900 as few traders were willing to hold long positions ahead of the speech. The markets may also be a bit jittery ahead of the US GDP figures for Q2 which are expected to be revised lower to 1.1% from 1.3%. with some traders fearing that a more negative print may force the Fed into further easing action.

Meanwhile in UK the GDP data printed in line with expectations at 0.2% for Q2 of 2011. Services which expanded at 0.5% rate offset the sharp decline in Industrial Production which contracted by 1.6% and knocked -0.3% off the headline number. Part of the reason for the underperformance of the manufacturing sector was largely due to the disruptions cause by the Japanese earthquake, but the ONS warned that Q3 may not result in a full rebound of production and may continue to dampen o UK GDP performance going forward.

Overall the data was tepid, but nevertheless positive indicating that the UK economy continues to expand modestly for 6 out of the past 7 quarters. The result was viewed with relief by the market that feared growth may have come to a total standstill in Q2 and cable rallied somewhat in the post news trade rising towards the 1.6350 barrier. For the time being the fact that UK GDP remains expansionary should allay any fears of additional QE measures from the BOE and serve as mild support for sterling.

In North America trade, all eyes will turn to Dr. Bernanke as the markets eagerly await his remark on the future course of US monetary policy. We doubt that he will introduce any new policy initiatives especially ahead of President Obama's own policy speech on September 5th. Instead, the Chairman is likely to simply reaffirm the Fed's ultra accommodative stance announced at the last FOMC meeting. If our scenario were to play out the dollar may get a bit of a boost versus the low yielders as fears of further dilution of the currency would dissipate, although the reaction in the FX market could be far from clear if equities react negatively to Chairman's remarks. The key to direction could lie not in any policy discussion that Dr. Bernanke makes, but rather in his assessment of the overall economy. Recently the Chairman has been very downcast in his analysis, but if he sounds a note of optimism the buck could rally against the low yielders as the day proceeds.

Note: I will be gone until September 6th. No reports until then.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 12:30 8:30 Gross Domestic Product (Annualized) (2Q S) 1.1% 1.3%
USD 12:30 8:30 Gross Domestic Product Price Index (2Q S) 2.3% 2.3%
USD 12:30 8:30 Core Personal Consumption Expenditure (QoQ) (2Q S) 2.1% 2.1%
USD 12:30 8:30 Personal Consumption (2Q S) 0.2% 0.1%
USD 13:55 9:55 U. of Michigan Confidence (AUG F) (AUG F) 56.3 54.9

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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