2010-07-22 11:15

XTB market snapshot

The speech of Fed’s chairman Ben Bernanke in front of the US Senate Banking Committee, in which he presented the report on monetary policy was the event of Wednesday. The investors were taken aback by the words ‘usually uncertain’ used regarding the American economy forecast. A sell-off started immediately on Wall Street followed by investors fleeing to safe bonds.

Bernanke scares the investors

The Federal Reserve’s chairman, except for the usual stable growth and low inflation phrases, used in his yesterday’s speech words ‘usually uncertain’ regarding the situation in the American economy. He also reassured that the growth-supporting policy measures would be taken if necessary but did not declare, which measures Fed would use. In his opinion the current economic conditions justify historically low interest rates. The speech of Fed’s chairman raised fear about the economic outlook within investors, which was faded by the quarterly reports season before. The economic figures will determine, whether this fear would go deeper.

Bearish reaction onWall Street

Wall Street reacted with a sell-off to Bernanke’s words. S&P 500 lost 1,28%, DJIA 1,07% and Nasdaq Composite 1,58%. After this sell-off, the US stock market outlook could also be described as ‘unusually uncertain’. The way in which the market would go depends on 2 factors – quarterly results of the US companies and the US macroeconomic figures. In order to push it up, positive signals from both sides would be required. The opposite move could be caused just by one of these conditions. This theory will be tested today, as both quarterly reports from many US companies and macroeconomic figures are about to be released.

Dollar gaining against the euro

The stock sell-off was followed by a flee to bonds and safer currencies. The yen and the Swiss franc appreciated against most currencies, so did the dollar. As the EUR/USD decreased from 1,2891 to 1,2753, confirming the shooting star formed the day before, the corrective move should last longer. The first target should be 1,27 USD, where the support is set by the 1H local up from 8th and 9th of July. Putting the corrective move on time scale, the Friday stress test results release would be a perfect time for its end.

Strong yen concerns

The increase of risk aversion among the investors pushed the USD/JPY down to 86,32, and EUR/JPY to 109,99. Japanese government is monitoring the behavior of its currency with gradually higher concern. Motohisa Ikeda, Japanese deputy finance minister said tonight that the government will try to avoid the further appreciation of the yen, which is threatening the exports. This verbal intervention did not calm the situation, as the real one is unlikely right now. The probability of it would increase, if USD/JPY falls below 84,81 - the 14-year minimum of the pair.

Jacek Mielcarek
jacek.mielcarek@xtb.pl
XTB Poland

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