Archived IMT (2010.07.21)

USD STRESSED OUT BY BERNANKE? Since markets are widely expecting Bernankes testimony to highlight the Feds downgrade for US growth and inflation, most FX players see it as an opportunity to sell USD into the end of the US session. Yet, it is relatively common for markets to bid up currencies 2-3 hours before their anticipated decline. Weve seen this in several FOMC meetings in H2 2009 when markets would bid up USD during the day before ultimately dumping it in mid NY afternoon when the FOM C affirms low US rates for an extended period. Unlike in other Fed testimonies, todays speech will occur at 18:00 GMT (19:00 BST), which means by the time Senators begin to pressure Bernanke about the need for further policy stimuli, markets would grow less liquid and US bond yields will see less support, thereby further dragging down USD. BUT there are TWO FACTORS, which could lead to this exception i.e. help USD; i) a resulting stocks decline, whose risk aversion could eventually support USD; (ii) EUR-negative news about related to the stress test. EURUSD still seen support at $1.2745-50 -- June 30 trend line-at which cautious buying to ensue ahead of Thursdays Asian trade.