Fed dove doesn’t turn hawkish – EUR/USD above resistance, AUD/USD above 0.98

The dollar extended its slide across the board as FOMC member Charles Evans made relatively carefully statements, and didn’t make any hints about QE tapering.

Has the dollar rally ended or is it just a healthy correction before the next surge?

What Evans said

Chicago Federal Reserve President Charles Evans did provide some optimism. He said that the economy is improving quite a lot, although headwinds remain. The recent mixed economic data doesn’t make him “overly concerned”.

The job market is good news. He sees the unemployment rate falling and also government layoffs falling. Consumer spending is quite good despite tax hikes.

2013 is a year of turnaround, for Evans, that talked about growth standing at 2.5% and rising above 3% in 2014.

What Evans didn’t say

With so many positive statements about the economy, why didn’t the dollar rise? Well, Evans also said that the current Fed policy is appropriate. And there’s also something that he didn’t say: he didn’t mention any unwinding,  tapering or scaling down of QE.

Evans did not follow the footsteps of his colleague John Williams, also a dove, who mentioned some unwinding of QE as soon as this summer.

Currencies

His speech came on a very light day of economic data and after the dollar rallied strongly on Friday.

• USD/JPY: The correction against the yen already began earlier, with Japan’s economy minister talking down the yen.
• EUR/USD continued recovering after dipping below 1.28, and it is now trading above the resistance line of 1.2880 that capped it earlier. It’s important to remember that the flow of FOMC speakers will be countered by ECB president Mario Draghi later in the week. There are plenty of other important indicators. See the EUR/USD outlook for more.
• AUD/USD, which collapsed across the board, finally found some comfort, and managed to collect itself from the ground of 0.97 and marched steadily above 0.98. This is a significant comeback, but just be a healthy correction before the next fall.
• GBP/USD, that struggled with 1.52, is now trading around 1.5260. Cable certainly has reasons to rise.
• USD/CAD managed to calm down (also thanks to Canada’s Victoria Day), and it fell under 1.0250.

Where next for the US dollar? Is it a correction before the next surge or a turn in direction?

A lot depends on Ben Bernanke, that will testify on Wednesday. In general, members of the US central bank are set to dominate FX this week. And where is Bernanke headed? He might be ready for a change – a change that will boost the dollar.