Dollar falls sharply as Bernanke seen dovish
After initial gain on stronger than expected core CPI, dollar fell sharply across board as Bernanke’s Semiannual Monetary Policy Report to the Congress starts and delivered a rather dovish message. He points to the risk of moderating growth and the lagging effect of past policy actions on the economy. “The lags between policy actions and their effects imply that we must be forward-looking, basing our policy choices on the longer-term outlook for both inflation and economic growth.”
However, regarding the economy, the Fed forecasts growth of GDP to slow from first quarter’s rate of 5.6% to 3.25% to 3.5% this year and 3% to 3.25% in 2007. Also, “the price index for personal consumption expenditures excluding food and energy, inflation is projected to be 2-1/4 percent to 2-1/2 percent this year and then to edge lower, to 2 percent to 2-1/4 percent next year”. Traders interpret that Bernanke sees inflation is still contained and are quick to price out an Aug hike.
Full text of Testimony by Chairman Bernanke on the Semiannual Monetary Policy Report.
USD/CHF
USD/CHF falls sharply after reaching 1.2594 in early US session, kept slightly below 50% retracement of 1.3283 to 1.1919 at 1.2601. Now, with 4 hours MACD turning down and RSI fall back from overbought region, a short term top should be formed at 1.2594 already. Outlook is turned
consolidation with bias on the downside. Further retreat could follow but as long as downside is contained by 1.2442 cluster support (38.2% retracement of 1.2182 to 1.2594 at 1.2437), consolidation should be brief and rally from 1.2182 should resume sooner rather than later. Below 1.2442 will encourage further decline to next cluster support of 1.2330 (61.8% retracement of 1.2182 to 1.2594 at 1.2339)
As discussed before, the whole rebound from 1.1919 is still in progress. Focus is now on key fibo resistance of 50% retracement of 1.3283 to 1.1919 at 1.2601. Breaking of 1.2601 will argue that the whole fall from 1.3283 has completed with three waves down to 1.1919 and in such case, further rise towards next cluster zone of 61.8% retracement of 1.3283 to 1.1919 at 1.2762 and 100% projection of 1.1919 to 1.2527 from 1.2182 at 1.2790 will likely follow in the coming weeks. We’ll still favor this case as long as USD/CHF stays above 1.2330 cluster support.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.
Shing-Ip Tsui (Shing) is the founder and CEO of www.ActionForex.com. ActionForex is set up with the aim to empower individual forex traders by providing insightful contents. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.