In yesterday’s testimony before the Senate Banking Committee Bernanke put the brakes on expectations for another round of bond purchases by the Fed as the USD recovered some of its declines over the past two days. Today’s CPI data and European bank stress tests will likely set the tone going into the weekend and perhaps provide further USD strength.
Today’s Key Economic Events:
USD – Core CPI m/m – 12:30 GMT
Expectations: 0.2%. Previous: 0.3%.
The data in May showed core CPI rising at a rate of 1.5% y/y. With inflationary pressures climbing the Fed will be hesitant to begin a third round of quantitative easing for fear of losing its grip on inflation. A higher core CPI reading will likely strengthen the dollar as traders scale back their expectations for QE3. EUR/USD support is found at yesterday’s low of 1.4115 and the weekly low at 1.3835. Resistance comes in at 1.4280 off of the 100-day moving average.
USD – Prelim UoM Consumer Sentiment – 13:15 GMT
Expectations: 72.5. Previous: 71.5.
A rise in US consumer sentiment driven by lower gas prices would likely boost equities and weaken the dollar. GBP/USD resistance comes in at 1.6200 from the falling trend line off of the May and June highs, followed by 1.6440. Support is back at the weekly low at 1.5780, a 38% retracement from the May 2010 low to the April 2011 high.
EUR – Bank Stress Test Results – 16:00 GMT
The release of the results from 90 banks could be a euro negative going into the weekend close. Perhaps the way to play a negative result from the tests would be a short of the EUR/CHF below the 1.15 level.
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