Bernanke on the fence as the Italian auction dominates today

The FX markets are consolidating following extreme volatility at the beginning of the week following the UK downgrade and the Italian election debacle. Federal Reserve Chairman Bernanke provided the market with a calming influence following the hawkish FOMC minutes last week. He remained dovish but not to the extent that some had been hoping for as reiterated that QE will continue until there are substantial labour market gains although he was slightly more optimistic on the economy calling the Q4 GDP ‘a pause’ and that Q1 GDP has rebounded with the labour market ‘improving gradually’ but remaining ‘generally weak’ and he made it very clear the FED has an exit strategy to QE.

Italy will be in the spotlight again this morning as they are scheduled to issue euro 3-4 billion 10-year BTP’s but pressure is already building from rating agencies with Moody’s warning of a downgrade if reforms stall due to political uncertainty although I note they already have Italy on a negative watch like they had the UK.

The BoE’s Tucker added to bearish sentiment yesterday by reiterating that sterling needs to fall further and that nobody on the BoE board thinks QE is coming to an end.

We have a busy economic calendar today with EU economic sentiment, UK GDP along with the all important Italian auction this morning. Across the pond we get durable goods, pending home sales and mortgage applications whilst Fed Chairman Bernanke will repeat his testimony before the Financial Services Committee.

EUR/USD

Supports 1.3035-1.3015-1.2995 | Resistance 1.3125-1.3150-1.3175

USD/JPY

Supports 91.65-91.20-90.80 | Resistance 92.30-92.80-93.10

GBP/USD

Supports  1.5075-1.5050-1.5000 | Resistance 1.5140-1.5185-1.5235