Bernanke´s Address and the Economic Data Generated Optimism


Master Trader
Jun 7, 2009
By Mercaforex
Last trading week the U.S. dollar went bearish. During Friday's trading session, the U.S. dollar lost ground against the Euro and major currencies, as stocks markets around the world became bullish. Wall Street reached its highest numbers since last November. The Dow Jones, the main index in NY went up 1.67%, and finished in an uptrend for the fourth consecutive time, reaching its highest figure for 2009. The Dow Jones advanced 155.91 points reaching 9.505.96 units and since the U.S. presidential elections, November the forth, we did not see this high numbers. Also the S&P 500 advanced 1.86% and closed at 1.026,13 points. While the NASDAQ gained 1.59% and reached 2.020.90 points, which means a weekly gain of 1.78%. Both indexes marked its best figures for 2009, and since this year begin the indexes accumulated gains of 13.6% and 28.15% respectively. This way, the U.S. stock market consolidated its uptrend that started last Tuesday.

The market was boosted by the U.S. Housing Market figures, where registered an increase of 7.2% in sales of existing residential buildings for July. The Existing Home Sales, which determine the annualized level of existing residential buildings that were sold during the last month showed a number of 5,24 million, well above last reading of 4,89 million. As for today, there are no economic risky events on the calendar, and the U.S. dollar trend will be defined by the Euro and stock markets developments. But tomorrow the S&P/CS Composite-20 HPI will be issued, which determines the annual change in the average price of a single-family home in 20 metropolitan areas. The upcoming CB Consumer Confidence figures, which determine the mood of consumers in regards to economic conditions; and the House Price Index (HPI), which determines the quarterly change in the average price of residential properties are going to have a key role in the market's direction.

Last Friday trading session the market was reined by optimism. The Main Bourses and the U.S. stock market advanced, and the the risk appetite recorded new high numbers and this way investors left safe heaven currencies. This scenario was presented when the American Housing Market data was published together with the European PMI numbers, and we should remember that to these figures was join Bernanke's speech. U.S. Federal Reserve President, Ben Bernanke, stated at a press conference ¨Prospects for a return to growth in the near term appear good" and because hawkish central bank and governmental policy we are starting to see results. Bernanke also stated that the U.S. economy is beginning to show good numbers. Nevertheless the U.S. economy should face new hurdles. The government budget deficit is also in the spotlight, as the Obama administration plans to reform the health system and because of global warming policies. Anyway if Optimism continues to reign in the market, the U.S. dollar will continue to lost ground against the majors.

During last week trading session, the Euro strengthened against the U.S. dollar, as U.S. and European stock markets went bullish. Last Friday the Flash Manufacturing PMI data from Germany, France and the Euro Zone were published. This indicator determines the activity level of purchasing managers in the manufacturing sector, and a reading above 50 indicates an expansion. The German Flash Manufacturing PMI showed a Reading of 49,0, the French numbers a reading of 50,2; while the European Flash Manufacturing PMI showed a figure of 47,9. Also Friday was published the German Flash Services PMI, which determines the activity level of purchasing managers in the services sector and showed a reading of 54,1; while the French data showed a reading of 48,9; and the European Flash Services PMI showed a number of 49,5. It is important to note that PMI figure from France, Germany and Europe showed interesting improvements, hinting economical stabilization, and a reading above 50 indicates an expansion and we are very close to this mark. After this Optimistic data came later the U.S. Federal Reserve President's words. The PMI data showed that the European region started to stabilizes in August. The 16 Europeans members are on the road to growth after one of the worst economical crisis after the Second World War. The European Flash Services PMI showed a reading of 49,5 points as we told, and in July we saw a reading of 45,7. Also the European manufacturing sector showed signs of recovery, as the European Flash Manufacturing PMI reached 47,9 points, when previous reading was 46,3. These numbers could be revised in September, but are clear signs that the recovery is spreading around the European region. As for Today we are waiting the Industrial New Orders, which determines the worth of new purchase orders placed with domestic manufacturers for durable and non-durable goods and is forecasted a reading of 1,7% when last reading was -0,2%. Signs of recovery appear to continue in Europe, we just have to wait if expectations are meet. Tomorrow will be published the Final German GPD numbers. If Optimism could maintain in the market, the Euro will advance against the major currencies.

During Friday's trading session, the Sterling maintained its trend against the U.S. dollar, as the stock markets worldwide went bullish. Prior to the weekend there were no economic events on schedule in the UK and for today we also have an empty economic calendar from England. Nevertheless, tomorrow come the Nationwide HPI figure, which determine the monthly change in the average price for a house in the UK and serves as a leading inflation indicator for the Housing Market and a reading of 0,6% is forecasted, below the previous reading of 1.3%. Furthermore, tomorrow the BBA Mortgage Approvals are going to be issued, which determine the level of home loans issued by the BBA during the last month and is estimated at 37,9K. The British Housing Market is showing small signs of stabilization, but specifically the UK is fighting against hard hurdles, and recently Governor Mervyn Allister King manifested concerns about the British economy. The Governor of BoE thinks that new injections of money to boost the economy are needed. As for tomorrow, MPC member, Charles Bean, will speak, and this is going to be followed closely by investors, as lately we saw disagreements inside the BoE. It is important to note that after the Federal Reserve President's speech, and the optimism generated in the market, British stock market advanced and the FTSE 100 gained almost 2%, marking a 10 month high. It was an incredible day. In this sense the Sterling advanced against the U.S. dollar. The last European economical data and Bernanke speech, together, booted risk appetite and the British Pound and the Euro used that advantage to push higher.

On Friday's trading session, the Japanese Yen advanced against the U.S. dollar, as we saw a very volatile trading session in the stock markets worldwide. Lately we have seen how the Chinese Stock Market influenced the main Bourses worldwide, and this event affected the Forex Exchange Market as investor flee safe heaven currencies like the U.S. dollar and the Japanese Yen because risk appetite was boosted. On Friday's trading session Chinese technical analyst forecasted that Chinese economy will rise 8.5% through the third quarter compared to 2008, after an increase of 7.9% for the second quarter. But we should understand that this announcement was issued when anxiety was taking the markets by surprise, because there are some forecasts that estimate China may contract though this quarter. On Friday, Crude Oil Value advanced after U.S Federal Reserve President, Ben Bernanke stated that the U.S. is showing good signs of recovery and to the short term he expressed optimism. After Bernanke's Speech and together with the main economical indicators that were published, Wall Street and Crude Oil Barrel advanced hand in hand. Crude Oil Value finished up at 73.89 USD, gaining 1.3% to its previous session and marked 74.72 USD last October high levels. Analysts were following also the Hurricane Bill, and its evolution, because was predicted a rise in its category. Once again we watched the U.S. dollar's inverse relationship with Wall Street and the Crude Oil Value. As for Today will be a quite day regarding Japanese economic calendar, but tomorrow it's coming the Japanese Trade Balance figures and is estimated a number of 0.29T. Japan economical growth will depended on its exporting sector and the Trade Balance figures will give us the Japan's economical capacity for recovery.
Technical Analysis

The market hit support at 980.62, and found new life. We burst past the trading range and have hit a high 1027.59. This market is acting strong. The weak US dollar is suggesting that people are taking money out of safe haven investments, and increased risk appetite is pushing equities higher. Could the worst be behind us? If we are able to maintain these levels, and break above 1044.3 I believe that technically, we are going to see continued strength in equities. Support is 1018, Resistance 1044.3. I know these are wide ranges, but understand we haven’t traded here since October 2008. This area is like a vacuum. We blew through this range on the way down, and now we must see if we do the same on the way up. (However it is important to note, markets fall a lot easier than they climb back up!)

A solid buying tail followed by two failed attempts to bring the market below $940 is a definite sign of strength. Friday’s rally to 957.98 will probably see some respite today. Things to watch are going to be the US dollar and Equities, as they may give clues of another rally in this commodity. Resistance 975.36 and 971.84, Support 946.54 and 930.54