Highlights Of Bernanke’s Semiannual Monetary Policy Report


(US) Fed Chairman Bernanke: Q2 growth will likely be less than +2%, US economy continues to slow, Fed is prepared to take stronger action to aid the economic recovery (Prepared Speech):

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  • US economy decelerated somewhat in the first half of 2012. US recovery is being held back by multiple headwinds.
  • Housing is showing modest signs of improvement, while manufacturing and business spending are both decelerating.
  • Euro zone crisis is hurting both US and global economic activity. Deceleration in Europe could create big challenges in the US.
  • Falling crude oil prices have brought down US inflation.
  • Seasonal factors are only part of the jobs market slowdown. Unemployment will fall at a “frustratingly slow” rate.
  • Uncertainty about the “fiscal cliff” could impact confidence, Congress needs to act to deal with the “fiscal cliff” earlier rather than later.

To read the entire Semiannual Monetary Policy Report to the Congress before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.

(US) Fed Chairman Bernanke: Q&A Session With Members Of The Committee:

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  • Reiterates tools include communication about forward guidance; may have to consider additional steps as evaluation of whether the loss of momentum in the economy is enduring
  • Continuing to disuss various tools but have not come to a specific choice on easing tools.
  • QE and Operation twist have been effective in impacting rates and the stock market. Reiterates QE programs should not be used ‘lightly,’ but still have some capacity to support the economy.
  • Seeing near term drag from cuts in budgets at state and local Governments; need a gradual plan for fiscal sustainability in efforts to provide the economy air to continue to grow
  • Delaying fiscal adjustments entirely in the coming year would be a bad outcome.
  • Reiterates types of actions Fed could use may include using the discount window, purchase treasuries and MBS, cut IOER and increase detailed communications.
  • Inflation risk is relatively low now, there is a modest risk for deflation
  • Plans to unwind balance sheet in a way that would not spark inflation
  • It is extremely important to address ‘too big to fail’… would like to see international regulations on banking consistent across borders, should address too big to fail through capital, supervision, and living wills.

How to interpret these headlines?

Market is obviously disappointed over the relative lack of mention for further stimuli by Bernanke today and as a result, EURUSD dropped sharply and breached the 1.2200 level.  Going forward, with Bernanke pretty much sticking with the same stance during the last FOMC Meeting Statement, we are likely to see further strength in the USD as expectations for QE3 diminish.

Bernanke will continue his testimony tomorrow in front of the House, which in my opinion will probably not be as market moving as today; however, market will be operating under the same sentiment that no QE3 is coming, therefore I’d expect to see USD strength continuing throughout the day.

Another observation that I’d like to share is that market sold off USD prior to Bernanke’s testimony on speculations of potential QE3, and with Bernanke’s testimony today shattering the potential of a QE surprise, I believe we may see some pre-selling of Euro tomorrow as market shifts its focus away from US to the turmoil in Europe, specifically with Spain and Greece… Therefore, EURUSD should be a sell on rally, a position that I have been maintaining for some time.

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About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

You can find more information about me on my Google Profile.

Comments

  1. Hi Henry,
    I am reading you articles past few months. You fundamental research sounds great. I follow normally TA trading method. But your outlook on currency pair strength as per fundamental research gave me better understanding whether to look for SHORT/LONG position in currency pair. Help me choose less wrong trades.
    My position right now Shorted GBPUSD at 1.5650.

    • That’s precisely what I see with GBPUSD as well… I believe USD will get stronger, so your trade could go down to the 1.5500 and yield 150 pips. Good job.

  2. Iain Jack says:

    Hi Henry, I have been following your site for a while and am now ready to start trading. Do you advise using a multiple monitor system, and if so how many, to have a variety of charts and other information on view to trade successfully. I also plan to trade when I am out working. Should it be possible to trade your alerts using a Tablet.

    • I personally use a 3 monitor system with 1 displaying multiple charts, 1 displaying large font quotes, and 1 running news tickers. As far as remote trading, I’d recommend using MT4 mobile as you should limit your mobile device usage to just managing trades other than making entry decisions…

Trackbacks

  1. […] on clearly on Fed Bernanke’s testimony in front of the House and Senate committees for his Semiannual Monetary Policy Report. I used a popular quote to describe the market in my trade room as the very definition of […]

  2. […] on clearly on Fed Bernanke’s testimony in front of the House and Senate committees for his Semiannual Monetary Policy Report. I used a popular quote to describe the market in my trade room as the very definition of […]

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