Fed Chairman Ben Bernanke did not say anything all that different from the comments he made earlier this month or the monetary policy outlook outlined in January. Although Bernanke acknowledged that rates will be raised at some point, he was relatively downbeat about the economy. The Feds biggest concern is the labor market and how growth will slow once the stimulus starts to fade. Forex traders were very long dollars going into the release of his prepared statement and Bernanke's failure to telegraph additional tightening sent the dollar sharply lower against all of the major currencies. At minimum, traders wanted to hear optimism from the Fed Chairman but unfortunately his comments were subdued. With many Americans still out of work, it would have been politically unsavvy for Bernanke to appear overly optimistic, knowing that members of Congress will be criticizing the pace of recovery in an election year where their constituents face near-double-digit unemployment, record foreclosures and hard to get credit, especially for small businesses. Although private demand is growing at a moderate pace, low inflation and the lack of job growth will limit additional normalization by the Federal Reserve. Yet in the grand scheme of things we must remember that the Fed is still more hawkish than the ECB and BoE which explains why the sell-off in the dollar was limited. New Home Sales Plummet, Durable Goods and Jobless Claims on Tap Meanwhile new home sales plunged 11.2 percent in January, the sharpest decline since January 2009. The absolute number of new homes sold fell from 348k to 309k, a record low. This sharp decline is evidence of the difficulty that prospective home buyers have with attaining credit as well as the fading impact that the tax credit extension is having on demand. Unsurprisingly, weak demand has also pushed prices lower. Durable goods, jobless claims and house prices are due for release tomorrow. Orders for goods made to last for more than 3 years are expected to rise for the second month in a row. The manufacturing sector has been performing well thanks to a recovery in capital spending. Jobless claims surged last week and a pullback would be needed to sustain the momentum in U.S. equities. EUR: GREECE SUBMITS SWAP INFORMATION Although the euro ended the NY trading session higher against the dollar, the large wick in the candlestick indicates that bears still remain in control. Yesterday Greece submitted the swap information that Eurostat requested and according to the European Unions Statistics office, they did not inform the EU of their 2001 swap contract. Most likely there will be no consequences from the EU but rating agencies could downgrade Greeces sovereign debt ratings once again if they are not happy with the results. No revisions were made to the final fourth quarter GDP numbers for Germany. The economy stagnated in the fourth quarter due to a decline in consumption and government spending. Despite the deterioration in investor and business confidence, consumers were only slightly less optimistic. The Gfk consumer confidence index fell from 3.3 to 3.2 for the month of March, the first decline in 10 months. Dont forget that February was the coldest winter in 14 years in Germany and cold weather always dampers sentiment. Eurozone industrial new orders on the other hand grew 0.8 percent, which is another healthy reading for the manufacturing sector. German employment numbers are due for release tomorrow and based upon the PMI reports, employment could have improved last month. If you recall, manufacturing flash PMI rose to the highest level in 32 months in Feb. Eurozone confidence numbers are also due for release and we expect the same deterioration in confidence as the German ZEW, IFO and Gfk reports. GBP: BOE POSEN TALKS QUANTITATIVE EASING For the sixth trading day in a row, the British pound failed to rally against the U.S. dollar. There was no U.K. economic data released overnight but Bank of England member Posen discussed Quantitative Easing this morning. First, Posen said point blank that anyone betting on high inflation pressures will lose. Given that one of the central banks mandates is to keep inflation within target, the lack of inflationary pressures confirms that from a price perspective, there is no pressure to reduce stimulus. He also said a potential output drop is a big concern and because they do not know exactly how the economy will progress, they have to leave the door open on more Quantitative Easing. This does not mean that they will increase QE but if growth declined or there is another negative shock, more stimulus could be needed. In other words, the U.K. economy is not out of the woods and so they have no clear course in terms monetary policy at this time. The only piece of U.K. economic data on the calendar tomorrow is total business investment in the fourth quarter. A modest pickup is expected after the 0.6 percent decline in Q3. Sterling traders will continue to focus on incoming comments from BoE officials both Bank of England Governor King and monetary policy member Miles are scheduled to speak tomorrow. Like Bernanke we expect them to stick to script which in this case would be bearish for the British pound. AUD: RBA COULD RAISE RATES NEXT WEEK After the sharp sell-off on Tuesday, the Australian, New Zealand and Canadian dollars recovered marginally. Australia was the only country with economic data released over the past 24 hours. Wages grew at a slightly slower pace in the fourth quarter while construction work done increased by 2.6 percent. The construction sector and the housing market have been the strongest parts of the Australian economy and even though the RBA raised interest rates 3 times in row, the housing market barely cooled. As a result, there is a good chance that the Reserve Bank could raise interest rates next week especially after RBA Deputy Governor Battelino made extremely hawkish comments yesterday. Australian leading indicators are due for release tomorrow along with private capital expenditure. Neither one of these reports will probably have a meaningful impact on the Aussie. New Zealand business confidence will also be released and hopefully businesses will not share the sentiment as consumers who were less confident in February. The rally in the Canadian dollar was also helped by the rise in oil prices. Gold fell close to $6 an ounce but oil prices increased $1.29 to $80.15 a barrel. .................."
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