So far today, markets are happily steady in the aftermath of the ‘big’ Bernanke market spike this week and before key Chinese GDP data over the weekend. Most investors would happily take Friday’s drifting for “a market aftershock.” If anything, the mighty dollar has recovered somewhat against the potency of the G10 crew in the overnight session. Aiding the dollars cause were overnight comments from China’s Minister of Finance hinting at a slowdown in his country’s growth. The market will now expect investors to turn their attention to Fed speeches, especially after Bernanke’s recent dovish tone.
‘Helicopter’ Ben’s remarks in the heart of the week have served to reassure investors that he and the Fed are in “no rush” to scale back their bond-purchasing program. The market took this as “new” news, in hindsight it should not have been. The various asset classes quickly tried to price out some of their dollar premium during the most illiquid of time zones, the Australasia hand over. Ben’s rhetoric should not have been ‘news’ to the market since it was completely consistent with Fed statements in the past. Nonetheless, the message seems to have finally got through that a start to easing back on asset purchases does not mean a tighter monetary policy is in the shadows.
Market attention will obviously shift to the raft of other Fed speakers, Williams, Plosser and Bullard, on tap later today. Investors will be sifting to see if either individual has anything to add to Ben’s recent dovish comments. Bullard, in times past, has argued that more attention should be paid to inflation. That would suggest that the concept of tapering would be premature from his perspective. Plosser, on the other hand gets to vote next year – the market should not be surprised that he pushes the argument that the Fed should cease the Fed’s QE program sooner rather than later. So, somewhat of a balancing act that would entail investors to tread lightly on the final day of an already hectic week.
The 17-member single currency is trying to drift lower in a session that could be described as largely irrelevant, trapped between the post Bernanke spike and this weekend’s Chinese GDP data. It has been said that today’s buyers were for the most part yesterday’s sellers. It seems that theses speculators, macros and short-term model funds, have grown frustrated with the market. They are mostly the individuals that bailed on shorts yesterday and are now going long today. Due to the big losses post-Bernanke this week, do not be surprised that the speculators have much tighter stops closer to the market. This order type will naturally attract a market price action to a low volume and illiquid market. So far, the size and influence of the buyers would suggest that the EUR is well offered on rallies. A plethora of stops is first located under 1.3020 and larger stops under the psychological 1.3000 areas.
Stateside investors will be looking towards US and Michigan sentiment to add something to the general market direction. The US PPI is expected to rise +0.7%, m/m in June. This would be the largest monthly gain in nine-months, while the core PPI should post a modest +0.1% advance for the third consecutive month. The market has their fingers crossed for July’s consumer sentiment to come in above consensus at 86.0, reaching a new cycle high.
For Now Dollar Bulls Lick Their Wounds
Dean Popplewell, Director of Currency Analysis and Research @ OANDA MarketPulseFX
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