Central bank communication is currently the main market driver

by Forex Trading-Pips

Central bank communication is currently the main market driver, Forex Trading Update by FXStreet.com: 

Market movers today

  • Central bank communication is currently the main market driver. Fed chairman Bernanke will repeat yesterday’s testimony – this time in front of the Senate (see below). The session will include a Q&A as well. The overall message is expected to be little changed but changes in communication during the Q&A session could move the Treasury market. In the euro area ECB’s Asmussen is due to speak at 09.00 CET.
  • In terms of data releases focus will be on the US. The Philly Fed is expected to decrease slightly in July after a strong June reading (the highest since April 2011). Initial jobless claims are expected to drop back below 350 after last week’s 360K reading.
  • German Finance Minister Schäuble will visit Athens today. WSJ reports that Schäuble plans to discuss a loan programme of up to EUR100m to SMEs in Greece, financed by the German KfW. Initial negotiations on how a potential gap in the EU/IMF package to Greece should be financed could also be on the agenda.
  • In the euro area FI markets the main events will be the government bond auctions in France and Spain. Spain will be tapping the 3Y, 5Y and 10Y. Despite the recent issuance of a new syndicated 15Y and today’s issuance the 10Y segment has outperformed Italy the past week by about 10bp.

Scandi markets today

  • In the Scandi sphere there are no important releases in the calendar today. Both NOK and SEK have continued Tuesday’s move and strengthened against EUR.

Selected market news

  • Bernanke was slightly dovish when he delivered the semi-annual testimony to the Congress. Bernanke repeated that purchases can go up if needed and said again that financial conditions have tightened recently. He also expressed concern about the impact on growth from fiscal tightening. These factors could potentially be a trigger for pushing tapering until the end of the year. While the main scenario is that the Fed will start tapering later this year, the timing remains somewhat open. We expect September to be most likely but if data are not satisfying in the coming months, it could be pushed to December.
  • A dovish Bernanke triggered a rally in US Treasuries with the 10Y segment ending 5bp lower on the day. The S&P 500 ended the session with a small uptick of 0.3%, while the initial increase in EUR/USD has been reversed to a drop to 1.309.
  • Chinese house prices continued to increase markedly in June according to data released by China’s National Bureau of Statistics (NBS). NBS does not release nationwide prices, only data for individual cities. However, according to Danske Bank’s nationwide price index based on the price development in the 35 largest cities prices of new homes in June accelerated to 9.4% y/y from 8.4% y/y in May. Seasonally adjusted house prices in both May and June increased 1.0% m/m. Hence, so far there are no signs that the liquidity crunch in the Chinese money market has had a negative impact on house prices.
  • Last night the Greek parliament passed the austerity bill needed to release the next EU/IMF tranche.

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