Euro Short Covering Continues; Bernanke Testifies Before the House of

The greenback has been weakening since the London session started.

Euro short covering rally continues and reaches above 1.4100 despite

weaker data. Germany and Switzerland show lower inflation. UK labor

data was slightly worse. Bernanke reports to the House of

Representatives.

Equities, precious metals and high yielding currencies are off their

respective yesterdays lows. Euro is the relative strength winner as

short covering rally continues supported by slightly tighter

Italian-German 10 year spread. Euro ignored weaker May Industrial

Production that came out at 0.1% (0.5% exp.) from previous 0.2%

There were interesting developments on the inflation front. After

yesterdays lower than expected consumer inflation data from the UK,

German wholesale prices dropped in June -0.6% from a steady reading

month earlier (lowest print since 4/2009). Swiss PPI also showed lower

reading when it printed -0.5% from previous -0.2% (lowest since

8/2010).

News from the UK point to a weaker labor market as the Claimant Count

Change for June showed fourth back to back increase. The number of

people claiming benefits increased to 24.5K from 22.5K. The

unemployment rate kept steady at 7.7%.

New York session has only a few items that traders should watch out

for. At 10:00 am ET FED Chairman Bernanke delivers Semi-Annual

Monetary Policy Report and Federal budget balance is due at 2:00 pm

ET.

Members of the FOMC have voiced different views and concerns. Many

analysts have criticized the FED for not providing any specific

details about the exit strategy. Ben Bernanke will have the

opportunity to provide unifying view and explain when the Fed intends

to start reducing its treasury holdings. Yesterdays FOMC minutes

provided information about the steps the FED will take. Now, the

market will want to learn when it will take them.

The possibility of another round of QE was discussed during the last

FOMC meeting. USD bulls should watch carefully for any hints of QE as

the FOMC met before last weeks disastrous NFP reading.

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