Fed Bernanke Jackson Hole speech to disappoint


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Fed Bernanke Jackson Hole speech is poised to disappoint the market, as most analysts agree that it is highly unlikely for Bernanke to break out the heavy artillery at this junction in time.  Furthermore, the very title of the scheduled speech (10:00am EST) on Friday is “Monetary Policy Since the Crisis,” which suggests Bernanke might take a closer look at policy responses since the launch of QE2 and Operation Twist,  rather than lay out potential policy directions for the rest of the year…

Looking at the potential scenarios, there are three possibilities:

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  1. Bernanke decides to announce QE3. This is an unlikely scenario, but because of last week’s FOMC Minutes, where the committee stated that “more stimulus could be justified in the short term if there is no pick up in the economywhich led the market to believe that the FOMC is on the verge of launching another stimulus.  Of course, with the November Presidential election coming up, this will probably be the last chance for Bernanke to “prepare” the market and appear somewhat independent and apolitical, if he is set on introducing more easing measures… But as I said, it is unlikely especially considering that economy has improved since last FOMC Meeting, thus the impact for this scenario will be high as USD should be sold off sharply.
  2. Bernanke decides to announce nothing. This is also a potential scenario, simply because the current economic climate isn’t exactly clear.  Understanding that the economy has not improved to a point where the Feds feel satisfied, nor has it deteriorated to a point that requires more easing, Bernanke could simply just avoid the subject of stimulus and carry on with the history lesson on “Monetary Policy Since The Crisis”…  This will bore the market, but at the end of the day, I believe it is the most likely scenario and USD will gain moderately and continue to pick up momentum… This could mean that there won’t be a QE3 for 2012.  I believe the key focus could be on USDJPY, USDCAD LONG or AUDUSD SHORT, as USD should definitely gain across the board… I’d probably hold off on the EUR because of potential ECB bond intervention. 
  3. Bernanke decides to adjust forward guidance and/or policy tweaks. This is also a potential scenario, although the effects will based on what was announced. My opinion is to avoid trading and let the market digest Bernanke’s speech first, and then come back on Monday, as sometimes the market has a tendency to act first and then corrects itself.  Often times when we get caught in the middle, we ended up losing…  Depending on what Bernanke says, market may or may not react, especially considering that there are some speculative positions already in play coming into this speech, we could see reverse market reaction on as traders get out of their speculative positions, thus making interpreting the direction of USD in this scenario extremely difficult…

All in all, I’d recommend watching Bernanke’s speech live at 10:00am and then follow the market.  I believe both scenarios 2 and 3 are equally possibile, since Bernanke may give in by making some policy promises, even when the economy is clearly showing improvements.  At the end of the day, I believe there is a good 80% of chance to see stronger USD, therefore going long on USDJPY or USDCAD should be justified as Fed Bernanke Jackson Hole speech is set to disappoint the market…




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  1. Hi Henry
    1-consider of the last week FOMC Minutes, it was like a second potential scenario but the USD became weak,why? is it possible today it will happen again(suppose to the result will the second scenario)?

    2-why yesterday EURUSD went down around 60 pips in 14:00 GMT?
    thanks a lot

  2. Thank you for this analys and for all.
    You are just great!

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