– USD reaction to slightly dovish Bernanke hints of extended USD positioning
Slightly dovish comments from Bernanke overnight led to a 50-pip rally in EURUSD and weakness in several USD/Asia pairs during the Asian session. While Bernanke’s speech was primarily on banking regulation, his comments weren’t that dovish or ground-breaking in themselves; he said “interest on excess reserves” (softer measure to attract deposits from banking system) will be the main tool to exit policy rather than asset sales. The negative USD reaction suggests positioning could be quite stretched long USD at current levels, as suggested by our own BNP Paribas FX Positioning analysis (see chart). We are happy to run with our short USDCAD recommendation into tomorrow’s FOMC minutes release. The minutes for March (like January and February) could sound less dovish, but we would view them as being dated after payrolls. The data calendar is reasonably light in the US session. We have the NFIB small business optimism index. Other than this, there are scheduled speeches from Fed’s Lacker and Lockhart.
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BNP Paribas