USD testing support as Bernanke discusses Fed tools

Bernanke’s prepared text for his Congressional testimony discusses the Fed’s monetary policy accommodation through “two distinct yet complementary tools”. The tools are balance sheet expansion (a.k.a. QE) and forward guidance. Bernanke emphasizes the difference between the two and indicates that QE is being utilized primarily to increase the near-term momentum of the economy while forward guidance is being used “to help maintain a high degree of monetary accommodation for an extended period after asset purchases end.”

He stated that QE depends on economic developments and that asset purchases “are by no means on a preset course”. Furthermore, Bernanke clarified that the recent discussion from the FOMC regarding QE is in the interest of transparency and that the decision to “provide additional information did not reflect a change in policy.”

With regards to the forward rate guidance, the Chairman reiterated that the specific numbers for unemployment (6.5%) and inflation in the guidance are “thresholds, not triggers”. Therefore, the FOMC may consider an increase in rates if a threshold is reached and would not automatically adjust the policy rate.

Overall, the statement provided no new insight and attempted to clarify the two distinct tools used by the Fed to maintain highly accommodative monetary policy. Markets responded to the statement as dovish as US treasury yields are lower, equities are higher, and the USD was initially weaker. In our view, the path of Fed policy as it moves closer to tapering QE marks a divergence from policy at other major central banks and remains supportive for the USD. As such, we would expect to see the USD rebound from current weakness.

Technically, the Dollar Index is has fallen to test a significant support zone around 82.40/60. This is where the 38.2% Fibonacci retracement of the 2013 range converges with the daily Kijun line and the daily ichimoku cloud base and top. If this zone holds as support, it is likely that the USD may rebound while a break below would signal the potential for a deeper correction.

Источник: Forex.com

17.07.2013