Intraday Market Thoughts

Bernanke Keeps Shrinking Options Open, AUD Eyes RBA's Stevens

by Adam Button
Jun 7, 2012 21:46

The Fed Chair said more stimulus may come but did not indicate whether that threshold had been crossed. See Ashraf's thoughts below on why Bernanke may have backtracked. The euro was unable to break above 1.2625 on a day where the pound led and the yen lagged. Japanese final Q1 GDP and April trade data is due; RBA Governor Stevens also speaks. Out of last nights 12 Intermarket Insights (aggressively biased towards risk-on), 4 it all targets, 7 in progress, 1 unfilled. See which trades did what in final paragraph.

Bernanke focused on risks from Europe in his testimony and also hinted at emerging deflation potential. The market was looking for a strong hint about forthcoming QE but he was coy, saying only that the Fed would act if the European crisis escalates.

Ashraf says: "Bernankes relatively guarded testimony towards giving any policy signals reflects the possibility that Fed economists are in the process of determining their latest forecasts post-May NFP and Chicago PMI in the face of stable ISMs and housing figures. Since markets have concluded that any further Fed QE would be principally aimed at containing a Eurozone event risk, the US central bank may be waiting for the final plan of action from ECB/IMF/EU before working out its part of the coordinated action".

The euro challenged the recent highs at 1.2625 prior to Bernankes testimony but faded to 1.2550 afterwards.

The Chinese rate cut sparked fears about a deeper slowdown rather than optimism about future strong growth. Economic data was not a factor with initial jobless claims in line with estimates at 377K. Ashraf had warned about the path to BRICs policy rates in these 4-in-1 charts in May 30 Premium Insights

Merkel created a stir when some headlines were misinterpreted to indicate she was in favor of Eurobonds. She only said that Germany is ready to use existing instruments to end the crisis.

Hopes that Spanish banks would be able to directly tap the ESM have been dashed due to treaty and legislative concerns. Any bailout will need to go through the Spanish government with an estimate from the IMF at 37B euros but private estimates as high as 100B and growing.

At 2350 GMT, Japan releases final first quarter GDP figures. The blockbuster quarter is expected to be revised upwardly to 4.5% from 4.1%. At the same time a trade deficit for April of 451B yen is expected.

At 0130 GMT, April Australian home loans are expected flat after a 0.3% rise in March. At 0330 GMT, RBA Governor Stevens speaks to the American Chamber of Commerce in Adelaide.

In last nights Premium Trades, 4 hit all targets (1 EURUSD long, 2 GBPUSD longs, 1 gold short), while 1 gold short was unfilled. USDCAD missed our 1.0210 target by 1 pip (low was 1.0211), therefore remains as in progress. See rest of our trades on AUDSD, USDCAD and US crude here: Non=subscribers can join here for a 1-week trial



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