Market Wrap Up: Dollar Tumbles as Bernanke Signals Aggressive Rate Cut

Market Wrap Up: Dollar Tumbles as Bernanke Signals Aggressive Rate Cut

Market Overview | Written by ActionForex.com | Jan 10 08 19:33 GMT |

Bernanke proved to be the biggest market mover today as his dovish comments sent dollar sharply lower in US afternoon. In his prepared speech Financial Markets, the Economic Outlook, and Monetary Policy, Bernanke said that risks to the economy have now become "more pronounced" and "baseline outlook for real activity in 2008 has worsened". The Fed is ready to take "substantive additional action" to safeguard the economy against such risks. Financial markets remain "fragile" even though Fed's implementation of Term Auction Facility eased some pressure on interbank lending rates. Bernanke described Dec's job report as "disappointing" and said that "should the labor market deteriorate, the risks to consumer spending would rise." Chance for a 50bps cut from Fed on Jan 30 FOMC announcement increased substantially to over 90%. Dollar was broadly lower, but the weakness is more noticeable against Euro, Swissy, Aussie and Kiwi. Earlier today, ECB left rates unchanged at 4.00% as widely expected. In the post meeting press conference, Trichet maintained a hawkish tone and emphasized that ECB stands ready to act "preemptively" to ensure second round effects and risks to price stability do not materialize. Also, He said that ECB will not tolerate an inflation spiral of rising prices and wages. On inflation, Trichet noted recent data confirmed that risk to price stability is on the upside and HICP will remain far above 2% in near term. BoE left rates unchanged at 5.50% today. As usual, BoE did not issue a statement today for keeping rates unchanged and markets will look forward to the minutes to be released on Jan 23 for details of the discussions and vote splits. Technically speaking, EUR/USD's rise from 1.4309 should have resumed today after completing an intraday consolidation pattern. Further rally should now be seen to retest record high of 1.4966 and then 1.5 psychological resistance. On the other hand, the USD/CHF should have have resumption the near term fall from 1.1596 for a retest of last year's low of 1.0890. Near term correction in yen crosses will likely continue with the support of mild strength in equities markets. Meanwhile, note that both Sterling and Canadian dollar fail remains weaker even comparing to the weak dollar. While tomorrow's industrial and manufacturing production data won't help Sterling much, Canadian dollar will look into tomorrow's employment report for the needed strength for a rebound. Economic Indicators Update 1/10/08 GMT Ccy Events Actual Consensus Previous Revised 00:30 AUD Australia Trade balance (aud) Nov -2254M -2500M -2983M -2863M 00:30 AUD Australia Exports Nov 18379M N/A 17235M 00:30 AUD Australia Imports Nov 20634M N/A 20219M 05:00 JPY Japan Leading indicators Nov 10.00% 10.00% 18.20% 09:30 GBP U.K. Trade balance (gbp) Nov -7.4B -7.225B -7.115B 12:00 GBP BOE rate decision Jan 5.50% 5.50% 5.50% 12:45 EUR ECB rate decision Jan 4.00% 4.00% 4.00% 13:30 EUR ECB Press Conference 13:30 USD U.S. Jobless claims Jan 322K 335.0K 336.0K 337K 13:30 CAD Canada New housing price index Nov 0.50% 0.30% 0.10% 13:30 CAD Canada Building permits Nov -9.90% -1.70% 6.80% 7.30% 15:00 USD U.S. Wholesale inventories Nov 0.60% 0.40% 0.00% 18:00 USD Fed Bernanke Speaks On Economic Outlook 1/11/08 GMT Ccy Events Actual Consensus Previous Revised 05:00 JPY Japan Economic watch DI Dec 38.4 38.8 07:00 EUR Germany WPI M/M Dec 0.40% 1.00% 07:00 EUR Germany WPI Y/Y Dec 6.10% 5.70% 09:30 GBP U.K. Industrial prod'n M/M Nov 0.10% 0.40% 09:30 GBP U.K. Industrial prod'n Y/Y Nov 0.60% 1.00% 09:30 GBP U.K. Manufacturing prod'n M/M Nov 0.20% 0.30% 09:30 GBP U.K. Manufacturing prod'n Y/Y Nov 0.40% 0.30% 12:00 CAD Canada Net Change in Employment Dec 15.0K 42.6K 12:00 CAD Canada Unemployment rate Dec 5.90% 5.90% 13:30 USD U.S. Trade balance (usd) Nov -59.3B -57.8B 13:30 USD U.S. Import price index M/M Nov 0.00% 2.70% 13:30 USD U.S. Import price index Y/Y Nov N/A 11.40%

Sources : ActionForex