An opinion piece by Federal Reserve Chairman Bernanke helped put pressure on the GBP USD early in the New York trading session.
The article in the Wall Street Journal highlighted Mr. Bernanke’s opinion that the Fed was “confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate.” Bernanke went on to say in the article that the Fed will maintain “accommodative policies” for an “extended period” of time.
These comments are helped encourage selling of the British Pound as they suggest that the Fed has a plan to systematically withdraw from its current expansionary policy without upsetting the market while maintaining control over future inflationary pressures.
Today Mr. Bernanke had an opportunity to expound on his opinion as he began a two-day testimony in Washington in front of the Senate Financial Services Committee. Throughout the day, investors curtailed their demand for higher-risk assets like the British Pound while waiting for direction from the Fed Chairman. I
Although all of the major Forex markets remain inside their June to July ranges, today’s action indicates that there is still strong demand for higher risk assets.
Today’s market opened as if the U.S. Dollar would strengthen all day. Buoyed by an opinion article by Fed Chairman Bernanke in today’s Wall Street Journal, the U.S. Dollar opened higher. It remained firm throughout the day during the testimony of Bernanke before the Financial Services committee.
Once today’s testimony concluded and traders assessed the damage if any, the Dollar weakened substantially into the close as traders once again sought higher-risk, higher-yielding assets. The strong surge in the equity markets helped erase almost all of the Dollar’s gains against every major currency with the exception of the Japanese Yen.
The best recoveries were in the Australian and New Zealand Dollar markets were early losses were erased as traders covered shorts and went long in an effort to capture the higher yields offered by these two currencies.
Short-covering also boosted the EUR USD into the close and put this pair in a position to rally further with the high for the year at 1.4337, the next potential upside target.
Firm crude oil and the late session rally in U.S. equities kept downside pressure on the USD CAD. The Bank of Canada left interest rates alone and failed to issue a strong statement regarding the current level of the currency. Many traders were looking for the BoC to make a stronger comment regarding the current price level of the Canadian Dollar and its effect on exports.
Traders have to assume that these major Forex markets will remain inside their ranges with the exception of the Australian Dollar and New Zealand Dollar, which are being driven by the awesome strength in U.S. equity markets.
Local: 312-896-3930
Toll Free: 800-971-2440
Email: Info@BrewerFX.com
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. The value of currencies may fluctuate and investors may lose all or more than their original investments. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from B.I.G. Forex, LLC and Brewer Investment Group, LLC or its subsidiaries and/or affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.
