EUR USD (1.3135) Ben Bernanke made an important comment about employment in his testimony yesterday: the Fed considers joblessness in the context of the whole population. This sentence might have been an acknowledgement of a Chicago Fed study we discussed in our last report. It revealed that baby boomers leaving the workforce were an important factor in the recent fall in the unemployment rate. As a result, the trend might not necessarily be a sign of a strengthening economy. This recognition gives the FOMC enormous flexibility when it comes to interpreting the jobs data. Mr Bernanke also retains much flexibility on the inflation front, despite the explicit two-percent target. He has already insisted that the Fed could tolerate above-target inflation rates in pursuit of its employment mandate. This means that even in the context of prima facie low unemployment and high inflation, the Fed could still maintain easy monetary policy on the ground that the US is not creating enough of the ‘right kind of jobs’. So although some (admittedly non-voting) Fed members, like Richard Fisher from Dallas, are calling for a halt to monetary easing and want to talk about exit strategies instead, QE3 might nonetheless be in the program.
We continue to look for a euro climb to 1.3290 and then to 1.3395. In case of a dip to 1.3035 (without first breaking 1.3290) we would embark on a new bullish strategy with a risk-limit set at 1.2910.
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Deutsche Bank