FOMC Meeting Minutes Show Caution – Employment Key for Tapering

The FOMC meeting minutes were somewhat overshadowed by the big roller coaster that Bernanke caused in his testimony earlier in the day.

Nevertheless, the minutes show that a stronger recovery is needed for exiting QE. It’s important to note that these are minutes from the May 1st meeting (where the Fed pointed to the fiscal drag), so the news is 3 weeks old, contrary to the fresh testimony from Bernanke.

• On one hand, some participants talked about tapering QE in the following meeting, in June. The existence of hawks on the FOMC is not news though.
• On the other hand, a couple of participants saw a need for more stimulus, especially if the level of inflation continued falling. Indeed, the inflation data published after the meeting, inflation continued falling.

EUR/USD is a bit lower after the release of the minutes: sliding towards 1.2840, where it bounced from earlier.

Bernanke rocked the markets earlier: at first, the release of the statement showed worries about unemployment and worries about exiting the monetary stimulus too early. A premature exit would damage the recovery. The dollar dropped on the lack of “tapering” hints.

However, when Bernanke was asked about the exit strategy, he mentioned that bond buys could be reduced “in the next few meetings“. This was enough to send the dollar surging: EUR/USD crashed 150 pips, USD/JPY reached new multi-year highs, AUD/USD fell under 0.97, USD/CAD rose to a near one year high and GBP/USD is getting closer to 1.50.

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Bernanke Mentions Option of Tapering – EUR/USD Falls, USD/JPY Leaps

When asked about an exit strategy, Ben Bernanke did release a comment that was certainly enough for dollar bulls.

After an initial slide, the dollar is now marching forward.

Bernanke said that the Federal Reserve could scale down QE “within the next few meetings”. Of course, Bernanke did condition this on an improvement in the labor market.

Updates:

• EUR/USD struggling with 1.2880.
• AUD/USD fell to new lows: it was also pressured by Bernanke and this snowballed: the pair lost the 0.97 line and approaches low support.
• GBP/USD is falling quickly and is trading at 1.5050.
• USD/CHF temporarily crossed 0.98.
• USD/CAD reached 1.0340 before bouncing. Update: it peaked at 1.0385, a nearly one year high.

EUR/USD is down to 1.2910, a 90 pip whipsaw so far. Update: it fell under 1.29 before recovring back above 1.29, but still under the pre-Bernanke levels. USD/JPY jumped higher, breaking the 103.30 peak seen last week and reached a high of 103.60 – a new multi year high. The pair holds above 103.34.

In the prepared statement, Bernanke didn’t talk about tapering. On the contrary, he said it would be premature to withdraw stimulus and hurt the recovery.

This pushed the dollar lower, but it didn’t go too far. Why? First, this was mostly expected after previous Fed speakers were very cautious. The second reason, is that the market is basically dollar bullish.

Bernanke continues answering questions, and he mentions that it would be better if there was a more balanced mix between monetary and fiscal policy.

Regarding EUR/USD, there is a third reason: EUR/USD was rising before Bernanke’s testimony without any reason. I wrote that the EUR/USD is vulnerable towards Bernanke, and that it could fall on any outcome. The pair rose on the prepared statement, but didn’t go too far.

At 1.29, it is now nearly 100 pips off the highs. GBP/USD and AUD/USD are also lower after Bernanke’s late hint. Here is a EUR/USD live chart:

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AUD/USD Loses 0.97 on Bernanke’s Subtle Tapering Hint

The Australian dollar enjoyed few days of consolidation, but this is over now. AUD/USD is falling under the round level of 0.97 and the next support line is not too far.

The recent fall can easily be attributed to Ben Bernanke’s testimony in Washington.

In his prepared statement, the Chairman of the US Federal Reserve said that it would be premature to stop monetary easing, as it could hurt the recovery. However, in an answer to a question regarding an exit strategy, Bernanke said it could happen in the next few meetings, depending on an improvement in employment of course.

While most of the speech was cautious and far from hawkish, this was enough to spark a dollar rally.

AUD/USD, that was already on the defensive due to a report about lower investment in mining, dropped under 0.97 and quickly deteriorated. It probably triggered stops. The Aussie fell as low as 0.9672 so far. Support appears at 0.9650, which was an important support line in the past.

For more levels, see the AUD/USD forecast.

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USD/CAD Highest in Nearly a Year – Broke Important Downtrend Resistance

The Canadian dollar continued its retreat against the US dollar on the background of weak Canadian retail sales and Ben Bernanke mention of a possibility of tapering QE.

USD/CAD is now at the highest levels since June 2012, leaving two previous peaks behind. The next significant resistance is far.

Here is the weekly chart, showing the big break of USD/CAD:

Domestic data began the slide: The volume of retail sales in Canada remained flat, contrary to expectations of a rise of 0.2%. The rise in the previous month was revised to the downside: from 0.8% to 0.7%. Core retail sales dropped by 0.2%, worse than a rise of 0.2% that was predicted. This was only the first mover.

And then came the Bernanke roller coaster

At first, the prepared statement was released. Bernanke mentioned that a premature withdrawal of QE could hurt the recovery and repeated the general stance that QE could either be increased or reduced. This sent the dollar lower across the board.

But then, when asked about an exit strategy, the Chairman of Federal Reserve mentioned that it could be seen in the next few meetings, depending on the economy, unemployment, etc.

The very cautious words were enough to send the dollar rallying fast, and the Canadian dollar surrendered.

USD/CAD Levels

USD/CAD rose to the 1.0340 level at first. This was a stubborn peak seen in February 2013. After a short pause, the pair continued forward, breaking above the 1.3060 level that was a peak back in early June 2012.

After peaking at 1.0385, the Canadian dollar managed to make a small recovery.

Looking at the chart, we can clearly see that this move also broke above the downtrend resistance line that began in mid 2011, was formed in May-June 2012 and was touched again in February. The three touches make it an important line, and the break is strong and clear.

The next lines above are 1.0446, which was the peak in May-June 2012. It’s quite far at the moment. It is followed by 1.0523, which capped the pair in November 2011.

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Forex - GBP/USD falls on U.S. monetary policy issues, U.K. data

The pound fell against the greenback on Tuesday after comments from Federal Reserve Chairman Ben Bernanke along with the minutes of Fed policy meetings released earlier left investors concluding that U.S. stimulus measures may scale back soon.

Soft U.K. retail sales data further pressured Cable lower as well.

In U.S. trading on Wednesday, GBP/USD was trading at 1.5037, down 0.76%, up from a session low of 1.5019 and off from a high of 1.5174.

The pair was likely to find support at 1.4832, the low from March 12, and resistance at 1.5281, Monday's high.

In prepared testimony, Bernanke told lawmakers earlier that ultra-loose monetary policy was providing "significant benefits" to the economic recovery and reiterated that the bank’s asset-purchasing program will remain in place for now.

Bernanke added withdrawing monetary stimulus could prompt interest rates to rise temporarily but could threaten the country's economic recovery as well as price stability.

"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further," Bernanke said in prepared remarks of his testimony. 

"Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability."

Stimulus measures currently in place, such as the Fed's monthly USD85 billion bond-buying program, weaken the greenback by flooding the economy full of liquidity to keep interest rates low and encourage investing and hiring.

However, Bernanke added that U.S. central bank may scale back its stimulus measures "in the next few meetings" if the labor market makes noted improvements, which strengthened the U.S. dollar.

Separately, the Fed released the minutes of its latest monetary policy meeting on Wednesday revealing that several monetary authorities felt stimulus programs should begin unwinding in June.

Elsewhere Wednesday, National Association of Realtors reported that U.S. existing home sales rose 0.6% to 4.97 million units in April from March’s revised total of 4.94 million. 

Analysts were expecting U.S. existing home sales to rise 1.4% to 4.99 million units in April.
Meanwhile across the Atlantic, the  Office for National Statistics said U.K. retail sales fell 1.3% in April from March, the largest fall in a year and defying market calls for a flat reading.

Retail sales rose 0.5% from a year earlier, well below expectations for a 2.0% increase.

Separately, the minutes of the Bank of England’s May meeting showed that three policymakers, including Governor Mervyn King, voted in favor of more easing this month, unchanged from April.

The pound, meanwhile, was down against the euro and down against the yen, with EUR/GBP trading up 0.28% at 0.8540 and GBP/JPY down 0.25% at 154.89.

On Thursday, the U.S. is to release the weekly government report on initial jobless claims and official data on new home sales.

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Forex - Dollar firms on Bernanke testimony, Fed minutes

The dollar rose against most of its peers in U.S. trading on Wednesday after Federal Reserve Chairman Ben Bernanke's told Congress that loose monetary policies will stay in place for now though talk of their dismantling may come up soon.

In U.S. trading on Tuesday, EUR/USD was down 0.45% at 1.2848.

In prepared testimony, Bernanke told lawmakers earlier that ultra-loose monetary policy was providing "significant benefits" to economic recovery and reiterated that the bank’s asset-purchasing program will remain in place for now.

Bernanke added withdrawing monetary stimulus could threaten the country's economic recovery as well as price stability.

"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further," Bernanke said in prepared remarks of his testimony. 

"Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability."

Stimulus measures currently in place, such as the Fed's monthly USD85 billion bond-buying program, weaken the greenback by flooding the economy full of liquidity to keep interest rates low and encourage investing and hiring.

However, the dollar saw demand after Bernanke said the U.S. central bank may discuss scaling back its stimulus measures "in the next few meetings" if the labor market makes noted improvements, which strengthened the U.S. dollar.

Separately, the Fed released the minutes of its latest monetary policy meeting on Wednesday revealing that several monetary authorities felt stimulus programs should begin unwinding in June.

Elsewhere Wednesday, National Association of Realtors reported that U.S. existing home sales rose 0.6% to 4.97 million units in April from March’s revised total of 4.94 million. 

Analysts were expecting U.S. existing home sales to rise 1.4% to 4.99 million units in April.

The greenback, meanwhile, was up against the pound, with GBP/USDtrading down 0.71% at 1.5044.

The Office for National Statistics said U.K. retail sales fell 1.3% in April from March, the largest fall in a year and defying market calls for a flat reading.

Retail sales rose 0.5% from a year earlier, well below expectations for a 2.0% increase.

Separately, the minutes of the Bank of England’s May meeting showed that three policymakers, including Governor Mervyn King, voted in favor of more easing this month, unchanged from April.

The dollar was up against the yen, with USD/JPY up 0.28% at 102.78, and up against the Swiss franc, with USD/CHF trading up 0.75% at 0.9774.

The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 1.04% at 1.0375, AUD/USD down 1.14% at 0.9694 and NZD/USD trading down 1.19% at 0.8073.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.49% at 84.33.
 
On Thursday, the U.S. is to release the weekly government report on initial jobless claims and official data on new home sales.

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U.S stocks end down on hawkish Fed minutes; Dow dips 0.52%

U.S. stocks fell on Wednesday with the release of the minutes from the Federal Reserve's latest policy meeting, which revealed monetary authorities favor scaling back stimulus measures as early as June. 

Stimulus measures, such as the Fed's monthly USD85 billion bond-buying program, flood the economy with liquidity to keep interest rates low and encourage investing and hiring, sending stocks rising as a side effect.

At the close of U.S. trading, the Dow Jones Industrial Average finished down 0.52%, the S&P 500 index ended down 0.83%, while the Nasdaq Composite index dropped 1.11%.

Investors avoided equities and flocked to the safety of the dollar after the Fed released the minutes of its two-day monetary policy meeting that began April 30, which revealed an end to stimulus tools such as the asset-purchasing program may be nearing.

"A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth; however, views differed about what evidence would be necessary and the likelihood of that outcome," the minutes read.

Earlier Wednesday, stocks rose after Fed Chairman Ben Bernanke appeared in Congress and said easing measures continue to benefit the economy.

Bernanke added withdrawing monetary stimulus could threaten the country's economic recovery as well as price stability.

"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further," Bernanke said in prepared remarks of his testimony. 

"Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability."

Still, stocks headed south after Bernanke said the U.S. central bank may discuss scaling back stimulus measures "in the next few meetings" if the labor market makes noted improvements, which strengthened the U.S. dollar.

Elsewhere Wednesday, National Association of Realtors reported that U.S. existing home sales rose 0.6% to 4.97 million units in April from March’s revised total of 4.94 million. 

Analysts were expecting U.S. existing home sales to rise 1.4% to 4.99 million units in April.

Leading Dow Jones Industrial Average performers included Pfizer, up 1.84%, Home Depot, up 1.25%, and JPMorgan Chase, up 1.17%.

The Dow Jones Industrial Average's worst performers included Cisco, down 2.75%, DuPont, down 1.47%, and United Technologies, down 1.27%.

European indices, meanwhile, finished higher.

After the close of European trade, the EURO STOXX 50 rose 0.47%, France's CAC 40 rose 0.37%, while Germany's DAX 30 finished up 0.69%. Meanwhile, in the U.K. the FTSE 100 finished up 0.53%.

On Thursday, the U.S. is to release the weekly government report on initial jobless claims and official data on new home sales.

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Forex - EUR/USD shrugs off Bernanke comments, weak U.S. data

The euro reversed earlier gains against the dollar on Wednesday and fell after Federal Reserve Chairman Ben Bernanke told the U.S. Congress policy will remain loose for now.

In U.S. trading on Wednesday, EUR/USD was down 0.21% at 1.2878, up from a session low of 1.2869 and off from a high of 1.2998.

The pair was likely to find support at 1.2819, Monday's low, and resistance at 1.3029, the high from May 14.

In prepared testimony to the U.S. Joint Economic Committee in Washington, Bernanke told lawmakers ultra-loose monetary policy was providing "significant benefits" to the economic recovery and reiterated that the bank’s asset-purchasing program will remain in place for now.

Bernanke added withdrawing monetary stimulus could prompt interest rates to rise temporarily but could threaten the country's economic recovery as well as price stability.

"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further," Bernanke said in prepared remarks of his testimony. 

"Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability."

Bernanke added that while the labor market is showing signs of improvement, long-term employment rates remain high and consumer inflation low.

Stimulus measures currently in place, such as the Fed's monthly USD85 billion bond-buying program, weaken the greenback by flooding the economy full of liquidity to keep interest rates low and encourage investing and hiring.

Elsewhere Wednesday, National Association of Realtors reported that U.S. existing home sales rose 0.6% to 4.97 million units in April from March’s revised total of 4.94 million. 

Analysts were expecting U.S. existing home sales to rise 1.4% to 4.99 million units in April.

The dollar fell against most major currencies on the soft housing data and Bernanke's dovish comments though it quickly bounced back due to its appeal as a safe haven as well as sentiments that expectations for monetary policy to remain accommodative have already been priced into the market.

The euro, meanwhile, was up against the pound and up against the yen, with EUR/GBP trading up 0.49% at 0.8559, and EUR/JPY trading up 0.70% at 133.19.

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Gold falls as Bernanke says policy stays loose, but under review

Gold prices erased earlier gains in U.S. trading on Wednesday after Federal Reserve Chairman Ben Bernanke said monetary stimulus policies will stay in place though scale backs were possible if economic indicators improve.

On the Comex division of the New York Mercantile Exchange, gold futures for June delivery were down 0.48% at USD1,371.05 a troy ounce in U.S. trading on Wednesday, up from a session low of USD1,365.95 and down from a high of USD1,413.05 a troy ounce.

Gold futures were likely to test support USD1,323.00 a troy ounce, the low from April 16, and resistance at USD1,444.15, the high from May 14.

In prepared testimony in Congress earlier, Bernanke said ultra-loose monetary policy was providing "significant benefits" to the economic recovery and reiterated that the bank’s asset-purchasing program will remain in place for now.

Bernanke added withdrawing monetary stimulus could prompt interest rates to rise temporarily but could threaten the country's economic recovery as well as price stability down the road.

"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further," Bernanke said in prepared remarks of his testimony. 

"Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability."

Bernanke added that while the labor market is showing signs of improvement, long-term employment rates remain high and consumer inflation low.

Stimulus measures currently in place, such as the Fed's monthly USD85 billion bond-buying program, weaken the dollar by flooding the economy full of liquidity to keep interest rates low and encourage investing and hiring, a recipe for rising gold prices.

Gold and the U.S. dollar tend to trade inversely from one another.

The dollar, meanwhile, regained its strength after Bernanke said the U.S. central bank may scale back its stimulus measures "in the next few meetings" if the labor market makes noted improvements.

Elsewhere on the Comex, silver for July delivery was up 0.06% at USD22.468 a troy ounce, while copper for July delivery was up 1.25% and trading at USD3.385 a pound.

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Forex - GBP/USD hits fresh 7-week lows after Bernanke comments

The pound fell to fresh seven-week lows against the U.S. dollar on Wednesday, after comments by Federal Reserve Chairman Ben Bernanke as expectations for further easing measures by the Bank of England continued to weigh on demand for sterling. 

GBP/USD hit 1.5075during U.S. morning trade, the pair’s lowest since April 4; the pair subsequently consolidated at 1.5061, retreating 0.56%. 

Cable was likely to find support at 1.5032, the low of April 4 and resistance at 1.5172, the session high. 

In prepared testimony to the U.S. Joint Economic Committee in Washington, Bernanke said accommodative monetary policy was providing significant benefits to the economic recovery and reiterated that the bank’s asset purchase program will remain in place for as long as is necessary.

The central bank head said withdrawing monetary stimulus could lead interest rates to rise temporarily, but also carried a substantial risk of slowing or ending the economic recovery and causing inflation to fall further.

Bernanke said that while conditions in the labor market have shown some recent improvement, long-term employment rates have remained at historic highs and consumer inflation has been low. 

The pound weakened earlier, after the Office for National Statistics said U.K. retail sales fell 1.3% in April from March, the largest fall in a year and confounding expectations for a flat reading.

Retail sales rose 0.5% from a year earlier, well below expectations for a 2.0% increase.

Separately, the minutes of the Bank of England’s May meeting showed that three policymakers, including Governor Mervyn King, voted in favor of more easing this month, unchanged from April.

The International Monetary Fund urged Britain’s government to do more to stimulate growth in its annual review of U.K. economic policies on Wednesday, and warned that austerity measures are posing headwinds to growth. 

Sterling remained near one month lows against the euro, with EUR/GBPclimbing 0.55% to 0.8563.

Also Wednesday, a report by the National Association of Realtors said that U.S. existing home sales eased up 0.6% to a seasonally adjusted 4.97 million units in April from March’s revised total of 4.94 million. 

Analysts had expected U.S. existing home sales to rise 1.4% to 4.99 million units in April.

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Gold futures gain ahead of Bernanke, U.S. stimulus in focus

Gold futures were higher on Wednesday, ahead of congressional testimony on the economy by Federal Reserve Chairman Ben Bernanke later in the day.

Gold traders also looked ahead to Wednesday’s Federal Reserve minutes for further hints regarding the central bank’s monetary policy.

On the Comex division of the New York Mercantile Exchange, gold futures for June delivery traded at USD1,384.85 a troy ounce during European morning hours, up 0.55% on the day.

Comex gold prices rose by as much as 0.7% earlier in the session to hit a daily high of USD1,387.45 a troy ounce.

Gold futures were likely to find support at USD1,337.85 a troy ounce, the low from May 20 and resistance at USD1,399.55, the previous session’s high.

Investors remained cautious ahead testimony at the U.S. Joint Economic Committee by Ben Bernanke, amid speculation over whether the U.S. central bank will begin to scale back its asset purchase program this year.

The minutes of the Fed’s May meeting are to be released later in the trading day.

On Tuesday, St. Louis Fed President James Bullard said the Fed should continue its bond buying and make adjustments as the economy changes.

Comments by New York Fed President William Dudley were also interpreted as suggesting the central bank wasn’t about to taper off its bond-purchase program.

Bullard and Dudley will both vote at the central bank's next scheduled meeting on June 18-19.

Gold prices have been under heavy selling pressure in recent sessions amid expectations the Fed will wind down its stimulus program, citing indications of an improving U.S. economic outlook.

Moves in the gold price this year have largely tracked shifting expectations as to whether the U.S. central bank would end its bond-buying program sooner-than-expected.

Despite the gains, sentiment on the precious metal was expected to remain bearish after data showed that holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.8% on Tuesday to 1023.08 tonnes, the lowest since February 2009.

Elsewhere on the Comex, silver for July delivery added 0.6% to trade at USD22.58 a troy ounce, while copper for July delivery rose 0.8% to trade at USD3.370 a pound.

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