Bernanke’s Speech and FOMC Minutes Dominate The Forex Markets

Bernanke's Speech and FOMC Minutes Dominate The Forex Markets
Bernanke's Speech and FOMC Minutes Dominate The Forex Markets
Last week saw the US closed for 1 ½ days to celebrate the Independence Day holiday, which usually indicates low volume and little activity, but not this year. The ECB and the BoE meeting on Thursday and the nonfarm payroll out on Friday surprised traders. Traders were expecting little comments from either central bank and the nonfarm report was expected to come in close to forecast. But this didn’t stop the markets to heat up especially the U.S equities and crude oil prices that sharply rose. Conversely, silver and gold prices started off the week on a positive note only to tumble down by the end of the week following the release of the slightly better than expected non-farm payroll report. It should be noted that even though the total numbers were good, a closer look at the numbers reveal that most of the gain was in part time employees (322k jobs were added in June), and  the participation rate is down.  The ECB and BOE decided to leave the cash rate unchanged but the ECB president suggested he may keep rates low or even lower than in the near future. This news dragged down the euro.

The US dollar has continued to climb to record highs trading at 84.80 this morning adding 10 more pips as traders countdown to Mr. Bernanke’s speech on Wednesday combined with the FOMC minutes from its June meeting, which will give some insight into the Fed’s thinking now that we have had weeks of strong data. Traders are now expecting the Fed’s to indicate that they will begin to taper purchases in September. The strength of the US dollar is weighing on the global currency markets. The Australia dollar fell this morning to trade at 0.9057 with the kiwi gaining a few pips on the weakness of the Aussie, both of these currencies are closely connected to the economic situation in China with major data due tomorrow, Chinese CPI and PPI could cause some volatility.

The euro is facing some major dilemmas today which are weighing heavily on the currency. The euro is trading at 1.2818 down by 16 pips ahead of final decisions on releasing additional funds to Greece, while political and economic problems continue to brew in Portugal.  Today the EU ministers of finance and Euro-Group President will gather in Brussels. Also today traders will closely watch German Industrial Production. The upcoming report will refer to June 2013. In the previous update, the industrial production rose by 1.8% during May. Later in the day Mario Draghi will testify in front of the Committee on Economic and Monetary Affairs of the European Parliament, in Brussels. He will also testify on the EU economy at the quarterly hearing of this Committee. Draghi will provide some insight into future steps of the ECB’s monetary policy; this testimony could affect the euro.

The pound continues to weaken trading at 1.4872 dipping 22 pips against the stronger US dollar. Comments from the Bank of England last Thursday continue to pressurize the currency with traders watching tomorrow’s data release. UK Manufacturing Production will present the annual rate of GB’s manufacturing production in May; in the previous report regarding April 2013 the index changed direction and fell by 0.2% (M-2-M); this news may affect the pound tomorrow. 

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