FX consolidates as white flags are raised

<p>The FX markets are consolidating, with the euro trading at the midpoint of the 1.2750-1.3200 range this week after the dollar’s demise following Fed Chairman […]</p>

The FX markets are consolidating, with the euro trading at the midpoint of the 1.2750-1.3200 range this week after the dollar’s demise following Fed Chairman Bernanke’s comment in early Asia on Thursday. The FOMC minutes to me were slightly bearish but let’s remember these minutes were taken before the stellar jobs report of last Friday that has the six-month NFP average at 200k. Bernanke emphasised that if financial conditions tighten to the level where the Fed’s dual mandate is in question, they will push back on any tapering. This for me takes us back to scrutinising US data as reiterated by all the Fed members since the last FOMC, with the standard line being ‘tapering asset purchases is far from tightening’. The timing of these comments came as early Asia arrived at their desks where liquidity is at premium. Hence as I look at the reaction to these comments in other markets (equities/bonds) I note that the reaction in FX seems very much overdone. That said this move just shows how long the market was the dollar but from here I’m not ruling out a move to 1.33,96.30 and 1.53 in the majors from a plain prospective on positions.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.