Bernanke presses China

Bernanke’s speech at the ECB’s conference today was about to be a major event at the end of the week but for some reason, a text of the speech was released during the Asian trade (coincidence?). Bernanke defends steps taken by the Fed but the main point of his speech underlines problems of global imbalances and mounts a pressure on Chine on currency issues. Bernanke argues that a stronger Yuan would compliment Fed’s efforts to boost the US economy and he is definitely right about that. However, in our judgment, a recent action taken by the Federal Reserve will delay any progress on currency floating in China. In context of the Fed’s outlook there wasn’t anything new but a fierce defense of the policies fits a current sentiment on the forex and might help the euro in the short term.

The euro has been gaining vs the dollar for three days, mostly on hopes for some draft solution to the Irish fiscal woes but the lower US CPI also didn’t hurt. The pair has approached a key resistance at 1,3697 (previous support) and should that level be broken, we might be eyeing as high as 1,3950. For now, however, it looks merely as a correction of the recent decline.  

Philly Fed surprisingly strong

Regional activity indices in US are important as they are first sign of economic conditions in any given month. Thus a record decline in the NY Fed index released on Monday was a reason to worry and made yesterday’s Philly Fed reading especially important. The Philly Fed index not only didn’t collapse but recorded the strongest gain in over 2 years and the value (22,5 pts.) wasn’t higher since April’05. The data helped equity markets yesterday with Dow back at nearly 11200 pts., the last hurdle before heading for 10’ highs.

Events to watch – ECB conference

BB’ speech at the ECB’s conference is the event of the day (5.15 ET, 11.15 CET) even if the text has been already released. It will be followed by speeches from Bundesbank and BoE representatives and finally ECB’s Trichet. One should also be vigilant to any leakages from EU/IMF talks with Ireland.

Przemysław Kwiecień PhD, Chief Economist

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X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. more