Euro Short Covering Continues; Bernanke Testifies Before the House

http://www.ashraflaidi.com/forex-news/?a=2533

July 13, 2011 09:06 ET :
The greenback has been weakening since the London session started.
Euro short covering rally continues and reaches above 1.4100 despite
weaker data. Germany and Switzerland show lower inflation. UK labor
data was slightly worse. Bernanke reports to the House of
Representatives.

Equities, precious metals and high yielding currencies are off their
respective yesterdays lows. Euro is the relative strength winner as
short covering rally continues supported by slightly tighter
Italian-German 10 year spread. Euro ignored weaker May Industrial
Production that came out at 0.1% (0.5% exp.) from previous 0.2%

There were interesting developments on the inflation front. After
yesterdays lower than expected consumer inflation data from the UK,
German wholesale prices dropped in June -0.6% from a steady reading
month earlier (lowest print since 4/2009). Swiss PPI also showed lower
reading when it printed -0.5% from previous -0.2% (lowest since
8/2010).

News from the UK point to a weaker labor market as the Claimant Count
Change for June showed fourth back to back increase. The number of
people claiming benefits increased to 24.5K from 22.5K. The
unemployment rate kept steady at 7.7%.

New York session has only a few items that traders should watch out
for. At 10:00 am ET FED Chairman Bernanke delivers Semi-Annual
Monetary Policy Report and Federal budget balance is due at 2:00 pm
ET.

Members of the FOMC have voiced different views and concerns. Many
analysts have criticized the FED for not providing any specific
details about the exit strategy. Ben Bernanke will have the
opportunity to provide unifying view and explain when the Fed intends
to start reducing its treasury holdings. Yesterdays FOMC minutes
provided information about the steps the FED will take. Now, the
market will want to learn when it will take them.

The possibility of another round of QE was discussed during the last
FOMC meeting. USD bulls should watch carefully for any hints of QE as
the FOMC met before last weeks disastrous NFP reading.

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Patrik Urban