USD was talked lower by Bernanke ahead of the US ISM Non-Manufacturing along with general strength in GBP and CHF.
MAJOR HEADLINES – PREVIOUS SESSION
The US currency continued lower today despite a strong ISM Manufacturing Index yesterday. In our mind, the fact that the ISM Prices Paid came out lower than expected has made inflationary concerns marginally lower. Today, the focus is on the ISM Non-Manufacturing, released at 16:00 CET. Expectations points towards a figure a tad lower than last time, at 56.0. Bernanke talked the USD lower as he stated that tighter lending standards for mortgages will "restrain'' housing demand for longer than policy makers anticipated. Also, Bernanke said tjat the slump in housing had not spilled over into other parts of the economy. We went long yesterday in EURUSD from 1.3463 and reached our short-term target at 1.3550. However, we are still bullish on the pair but will pay extra attention to the US yields as they are about to break resitance in the bear trend, which will strengthen the USD. The ECB statement tomorrow will be of extra importance - especially the comments from Trichet after the rate decision at 12:30 GMT.
GBP
The pound also rose decently against the USD and other currency pairs on back of expectations that the MPC will be hawkish on Thursday. It broke has broken bear trend resistance from 4/18/07 at 1.9910. The break of 1.9960 could easily give scope for a test of 2.00+ within the end this week.
From yesterday:
EUR/USD
On Friday, a string of US figures were released. Especially the Nonfarm Payrolls, out at 157K vs. 132K expected, and the PCE Core, out MoM/YoY at 0.1%/2.0% vs. 0.2%/2.1% expected, were key to the change in value that was seen. Once again, the ADP Report - the proxy for the Nonfarm Payrolls - disappointed after being on target the last time. Ahead of the figures EURUSD had traded in 1.3463, but fell after the figures ISM Manufacturing and Prices Paid figures, out respectively at 55 vs. 54 expected and 71 vs. 73 expected, to 1.3393, but closed in 1.3449. The Pending Home Sales disappointed at -3.2 pct vs. 0.3 pct. expected and prior months figure was furthermore revised lower.
In the Euro region, strong figures from the labor market added value to EUR-crosses on Friday, and today's better than forecasted PPI have pushed EURUSD through Friday's highs. A close above this level will confirm to us that we once again are back on track, enroute for a test of recent highs at 1.3680. This week the ECB will be in focus as they deliver the rate announcement on Wednesday. Market analysts in a survey conducted by Bloomberg all agree that the ECB will hike rates 25bp to 4.00 pct. so the main focus will be on the following statement from Jean-Claude Trichet.