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USD Struggles Amid Bernanke Comments, Euro Eyes 1.3500

By , Currency Analyst
26 March 2012 13:25 GMT

Talking Points

  • U.S. Dollar: Fed Chairman Bernanke Strikes Dovish Tone Amid High Unemployment
  • Euro: ESM & EFSF To Run In Parallel, Head-and-Shoulders Top Negated
  • British Pound: Eyes 1.6000 Ahead of BoE Rhetoric

U.S. Dollar: Fed Chairman Bernanke Strikes Dovish Tone Amid High Unemployment

The greenback struggled to hold its ground on Monday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR)giving back the overnight advance to 9,998, and the reserve currency may face additional headwinds during the North American trade should the developments coming out of the world’s largest economy fuel expectations for additional monetary support. Indeed, Fed Chairman Ben Bernanke struck a dovish tone for monetary policy amid the ongoing weakness in the labor market, and it looks as though the central bank head will keep the door open to expand the balance sheet further in an effort to encourage a stronger recovery.

As Mr. Bernanke continues to support an accommodative policy, it seems as though the central bank will endorse the zero-interest rate policy throughout 2012, but we may see a growing rift within the FOMC as Fed officials take note of the more robust recovery. As the economy gets on a more sustainable path, we should see the committee concluding its easing cycle this year, and the recent weakness in the USDOLLAR is likely to be short-lived as the index maintains the upward trend carried over from the previous month. In turn, we should see the reserve currency track higher going into April, and currency traders may turn increasingly bullish against the greenback as the fundamental outlook for the world’s largest economy improves.

Euro: ESM & EFSF To Run In Parallel, Head-and-Shoulders Top Negated

The Euro rallied to 1.3328 following the dovish comments from Fed Chairman Bernanke, and the single currency may continue to retrace the decline from the previous month as Europe policy makers increase their effort to address the sovereign debt crisis. German Chancellor Angela Merkel floated the idea of running the European Financial Stability Facility in ‘parallel’ with the European Stability Mechanism, while it seems as though the European Central Bank will continue to carry out its easing cycle in 2012 in an effort to lift the region out of recession. Indeed, Governing Council member Christian Noyer endorsed the ECB’s non-standard measures as the governments operating under the single currency struggle to get their house in order, and the central bank may continue to expand its balance sheet over the coming months as the fundamental outlook for the region remains clouded with high uncertainty. As the EURUSD clears the 2/9 high (1.3320), we are scaling back out call for a head-and-shoulders reversal, and it looks as though we will get another run at the 50.0% Fibonacci retracement from the 2009 high to the 2010 low around 1.3500 as the pair maintains the previous month’s range.

British Pound: Eyes 1.6000 Ahead of BoE Rhetoric

The British Pound extended the advance from the previous week, with the GBPUSD advancing to a high of 1.5956, and the pair looks poised to make another run at 1.6000 as market participants increase their appetite for risk. However, as the relative strength index breaks out of the downward trend carried over from the previous month, the technical development instills a bullish outlook for the sterling, and we may see the exchange rate continue to retrace the decline from back in November as market sentiment improves. With Bank of England officials expected to speak this week, less dovish comments from the Monetary Policy Committee should prop up the pound over the near-term, but the central bank may keep the door open to implement more quantitative easing in an effort to encourage a stronger recovery. In turn, we may have an opportunity to play the range-bound price action in the GBPUSD, but the recent strength in the sterling may gather pace going into April should the developments coming out of the U.K. dampen speculation for more asset purchases.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:00

10:00

Pending Home Sales (MoM) (FEB)

1.0%

2.0%

USD

14:00

10:00

Pending Home Sales (YoY) (FEB)

10.3%

USD

14:30

10:30

Dallas Fed Manufacturing Activity (MAR)

16.0

17.8

EUR

16:00

12:00

ECB President Mario Draghi Speaks on Euro Economy

GBP

20:45

16:45

BoE's David Miles Speaks on U.K. Economy

Currency

GMT

Release

Expected

Actual

Comments

NZD

21:45

Trade Balance (New Zealand dollars) (FEB)

153M

161M

Marks the first surplus for 2012, imports narrowed for the third month.

NZD

21:45

Balance (YTD) (New Zealand dollars) (FEB)

712M

621M

NZD

21:45

Exports (New Zealand dollars) (FEB)

3.93B

3.59B

NZD

21:45

Imports (New Zealand dollars) (FEB)

3.65B

3.43B

EUR

9:00

German IFO - Expectations (MAR)

102.6

102.7

Advances for the fifth consecutive month.

EUR

9:00

German IFO - Business Climate (MAR)

109.6

109.8

EUR

9:00

German IFO - Current Assessment (MAR)

117.0

117.4

USD

12:30

Chicago Fed National Activity Index (FEB)

--

-0.09

Lowest since November.

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26 March 2012 13:25 GMT