EUR USD (1.2280) Yesterday’s Bernanke testimony seemed to have been sufficiently general for all Fed-watchers to read what they wanted into it. Those who believe QE is still some way off highlighted his economic evaluation which is practically unchanged from that of recent months. For those who see a decision on renewed asset purchases more imminent – perhaps no more than one bad payroll number away – were encouraged because the Fed Chairman left the door open for further policy action. In any case, they say, a congressional testimony was never going to be the moment when he announced QE. We side rather with the former group. Bernanke described an economy that is flat-lining: slow growth, low inflation and weak job creation. However, a flat-line is probably not sufficient to justify restarting a policy the Fed fears might do more harm than good. The dollar rallied promptly when traders found no hidden references to QE in Bernanke’s speech. However, it fell back again almost immediately and ended the day practically where it started. Indeed, this week, the euro has shown a remarkable ability to rebound just ahead of last week’s two-year lows, but this is all that it has done; it has so far been unable to build on those gains. So, there has been no positive signal (the first would be above 1.2365 today) and a stabilisation (above 1.2455) remains as distant a prospect as it was on Monday morning.
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Deutsche Bank