Intraday Market Thoughts

Bernanke Calms Nerves, CHF Fall, Trichet's Turn Today

by Adam Button
Aug 27, 2011 9:03

Despite a downward revision to US Q2 GDP, Fed Chairman Bernanke reassured markets that growth will accelerate in the second half and that the Fed has the tools to do more. Bernanke & Trichet will appear on a joint panel later today in Jackson Hole. NZD was the top performer followed by AUD; CHF lagged badly followed by USD. Fridays CFTC report showed a pullback in EUR longs. Ashraf's Premium long gold trades hit their target w/ +$45 gains.

In a sense, Bernankes speech didnt live up to the hype. No concrete measures were announced except for a one-day extension of the September FOMC meeting. This proved to be enough as it was taken as a sign that action could be taken at the Sept. 20-21 meeting.

Stocks opened lower and risk trades were under pressure ahead of the speech but reversed as Bernanke said the Fed continues to believe growth will pick up and that it has tools at its disposal if needed . The S&P 500 closed up 1.5% to 1176 and up 4% on the week after four consecutive weekly declines.

We believe much of what we witnessed in stocks was the result of a short-covering rally. The speech may have brought the US fractionally closer to QE3 but more was expected. Bernanke also warned that officials havent seen enough to take action, the threshold to utilizing [new tools] is going to require fairly different conditions than what we have today, he said.

Bernanke may further refine his comments on Saturday when he appears on a panel with Trichet.

Other economic data continued to point to strains in the US economy. The U Mich consumer sentiment survey fell to 55.7 compared to 56.3 expected. Q2 GDP was revised to 1.0% compared to the 1.1% consensus. Domestic demand was revised to +1.1% from +0.6% . The US economy is operating very close to recession with any negative shock likely to be a tipping point.

Swiss franc fell on Friday after the SNB encouraged banks to charge fees on excess CHF reserve and UBS announced it may follow the directive shortly afterward. This news pushed USD/CHF above barriers at 0.8000.

Weekly Charts

On the week, NZD and AUD were the top performers with CHF and GBP lagging.

Gold was the real story of the week as it plunged more than $200 only to recover half of the declines. Last week we wrote: Those wishing to establish fresh positions may have a chance to buy on a pullback in the next week. The gains on Thursday and Friday affirm buying interest and the close on Friday above the 50% Fibonacci retracement of the breakdown points to further modest gains, at a minimum.

Ashraf's Premium long gold trades hit their target w/ +$45 gains. The silver trade remains in progress . For direct access click here: Non-subscribers click here:

On the week, EUR/USD posted the highest weekly close since early June and is nearing a medium-term technical breakout.

AUD/USD and other AUD crosses have rebounded solidly but it will take a close above 1.06 in AUD/USD next week to trigger a move back to 1.10.

It was the third week in a row of gains in USD/CHF.

Weekly CFTC Data

Fridays COT report showed net euro longs down to +2.5K from +6.7K. Overall the moves in the report were unusually small. JPY and NZD net longs were virtually unchanged at +47K. AUD longs increased 13K to +43K. The CAD net grew by 4K as shorts were taken off. The CHF positions surprisingly grew by 1K to 9K. One of the takeaways from the report is that overall speculative positions are dropping, a sign of volatility and uncertainty.


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