Bernanke and company will likely underline commitment to maintaining low rates for considerable time to come.


HEADLINES - PREVIOUS SESSION

  • Japan May Adjusted Merchandise Trade Balance out at ¥222.4B vs. ¥157.0B expected.

  • Japan May Corporate Services prices fell -3.0% YoY vs. -2.7% in Apr.

  • New Zealand Q2 Westpac NZ Consumer Confidence out at 106.0 vs. 96.0 in Q1


THEMES TO WATCH – UPCOMING SESSION

  • EuroZone Current Account (0800)

  • UK Jun. CBI Distributive Trades (1000)

  • Switzerland SNB's Roth to Speak (1000)

  • US May Durable Goods Orders (1230)

  • UK Bank of England's King and others to speak (1330)

  • US May New Home Sales (1400)

  • US Weekly DOE Crude Oil and Deposit Industries (1430)

  • UK's King and others testify (1445)

  • US FOMC Rate Decision (1815)

Market Comments:

The USD was sharply weaker across the board yesterday after the previous push stronger. EURUSD rushed all the way back above 1.4000 resistance and on to the 1.4100+ level and AUDUSD rebounded sharply after a push down through the important 0.7850 area the previous day. This action keeps the market largely in the range once again that it has held for some two weeks now, as every push to one extreme of the range suddenly is met with a wall of resistance. This holding pattern may finally find resolution one way or another with the FOMC meeting and monetary policy statement later today. Bernanke's rhetoric will be poured over for signs of cracks in the low rates policy. So much noise has swirled on speculation of the Fed's thinking on rates and the subject of "exit strategies" that the Fed will almost have to address these specific issues rather explicitly today. The tendency is for Bernanke to surprise on the side of dovish caution rather than hawkishness, but let's see what kind of mood the Fed chairman is in today.

It is more than disturbing that the US weekly consumer confidence plunged sharply over the last week and to only 1 point above its record low set in January of this year (the series began in 1985). This development comes despite the huge rally in equities since early March and supposed signs of stabilization that many are hoping will lead to recovery - or green shoots, if you will. Average people are apparently less affected by moves in the asset markets than the market would like to believe, and considering the need for the US consumer to continue to deleverage, the extremely weak sentiment reading suggests that end demand will remain low and disappoints the more bullish recovery scenarios. Final consumer demand will be a key factor at every turn as the US economy is to recover.

The European and early North American sessions are likely to be choppy and indecisive until the Fed makes its announcement at 1815 GMT. We still go with the idea that the market's high risk appetite will eventually sour. In the past, this would tend to have favored the USD, so let's see if the USD/risk appetite inverse correlation holds on the other side of the FOMC meeting. Tomorrow out of the US, we have the increasingly important weekly jobless claims number - will it scotch the hope that the USD economy is stable to improving or give the green shoots crowd further hope?

The Japanese JPY reversed sharply to the weak side after breaking to new highs against many of the other majors in recent days. The cause of the about face was difficult to tease out, but the Yen may simply have been piggy-backing the USD moves as USD and JPY crosses tend to head in the same direction. Now we have bullish reversals for the JPY crosses - though we do have a hard time seeing this move finding sustenanace in the likes of EURJPY and AUDJPY. Movements in interest rates will be a critical input, and interest rates are more than likely headed places tomorrow with the Fed on tap. JPY crosses may may be the big movers among the major currency pairs.

Chart: GBPUSD

Yesterday's daily GBPUSD candlestick chart shows a bullish reversal, though it is tough to invest confidence in setups like these considering the fibrillating and constant direction changes in this market over the last two weeks. The 21-day moving average has yet to fall on the close. Looking higher, there is still reasonably large room within the range to trade. The 1.6200 level is looking more important than ever. To the upside, 1.6660 is the high for the cycle.

GBPUSD