EUR USD (1.3355) The €530bn take-up by 800 European banks in the second tranche of the ECB’s LTRO was broadly in line with consensus expectations and the reaction was rather subdued. But the market interpretation of Ben Bernanke’s speech was more radical. Investors may have been a little surprised that he did not strike a more upbeat tone on the economy given the revision of Q4 GDP growth to 3.0 percent from 2.8 percent. Instead, while acknowledging the improved conditions in the labour market, Bernanke suggested that finally it would be consumer spending that supports US growth, while pointing out that household income was flat in 2011 and access to credit remained restricted. He also referred to the rising oil prices as a hindrance to growth. All these references to the headwinds to the US economy would have been tolerable if the Fed chief had also discussed what he intended to do about it, but he didn’t talk about implications for the policy. Perhaps lulled into comfort zone by the recent monetary easing by global central banks, the markets felt deprived by his failure to dwell on the prospects of further QE. Through yesterday’s pullback the euro confirmed the upper border of a new consolidation zone with borders at 1.3490 and at 1.3185. As long as it stays above 1.3285, we maintain a positive outlook on the euro and favour an eventual upside exit. Below this support, however, the opposite would be the case.
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Deutsche Bank