Bernanke Due Again
Risk appetite improved from yesterday but FX markets traded in relatively tight ranges overnight, following yesterday’s big moves in the wake of Fed Chair Bernanke’s semi-annual testimony before Congress. He did not issue any revision to previous policy guidance but did acknowledge that the unemployment rate was falling faster than expected. That was enough to trigger a broad-based pullback in risk positions. Only CAD bucked the trend on the grounds that better US data bodes well for Canadian exports, and a less dovish Fed might open the door to an eventual hike from the Bank of Canada. The US Treasury curve by comparison was largely unaffected, but we question for how much longer this can continue. Whenever US yields do break significantly higher, we expect USDJPY to follow. Chicago PMI was firm at 64.0 and the second estimate of Q4 GDP was revised up slightly. EURCAD continues to look vulnerable under the twin influences of Bernanke’s testimony and yesterday’s ECB LTRO. Our European bank analysts expect the Spanish banks to have been the biggest liquidity takers. Overnight, the forward-looking PMI components in Italy and France improved while Norway printed a headline reading of 56.9. The krone has continued to push higher and remains one of our favourite currencies, even under current valuations. EURUSD traded 1.3305-1.3363 and USDJPY 80.84-81.31. Today, an EU Summit gets underway and Fed Chairman Bernanke completes the second day of his Congressional testimony. .
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