Forex Trading

US Federal Reserve Chairman Ben Bernanke said he is “certain” the US Dollar would remain the world’s reserve currency. The British Pound may see volatility in European hours with the March Trade Balance and Industrial Production reports on tap for release.

Key Overnight Developments

• Bernanke ‘Certain’ US Dollar Will Remain Global Reserve Currency
• Australian Lending for Property Investments Surges Most in Nearly 2 Years

Critical Levels



The Euro rebounded a bit in Asian trading, testing above 1.36 once again but losing its grip on the figure ahead of the opening bell in Europe. The British Pound oscillated in a familiar 100-pip range below 1.5170 that has confined the pair over the past 24 hours.

Asia Session Highlights



US Federal Reserve Chairman Ben Bernanke sounded notably optimistic in a speech at Jekyll Island, Georgia, saying Wall Street’s response to bank stress tests was “encouraging” and that troubled financial institutions are now "way ahead" in raising capital. On the macro economy, the Fed chief said deflation risks are "receding" and an inflation rate at 1.5-2% is "appropriate". Speaking of the US Dollar, Bernanke said he is “certain” the greenback would remain as the world’s reserve currency.

In Australia, Investment Lending for property purchases surged 4.7% in March after falling -2.9% in the previous month, the largest upswing since June 2007. On the surface, the metric suggests that demand for big-ticket items is returning. Still, the data is not as encouraging as the headline figures would suggest. The cumulative monetary value of lending to real estate investors remains at the lowest level since 2002, coming in at just A$4.9 million as compared to the peak at nearly A$8 million when loans peaked in June 2007. If unemployment should rise to 6.75% this year and reach around 8% by 2010 as is being forecast by the National Australia Bank, housing demand may remain weak for the foreseeable future.

Euro Session: What to Expect



The UK Trade Balance deficit is set to narrow to -7.2 billion pounds in March from -7.3 billion in the previous month. The result is likely to owe more to a decline in imports rather than swelling cross-border demand. Even after excluding oil shipments to factor out the dramatic collapse in crude prices over the past year, exports have trended sharply lower since July 2008 and snapped a multi-year uptrend dating back to the beginning of 2004 in January. To that effect, an uptick in the headline external balance figure speaks of the timid consumer, not an improving trade environment. Lackluster overseas sales have weighed on manufacturing, a sector that tops the list of UK exports and employs 20% of the country’s workforce, with Industrial Production expected to post another record-setting drop at -12.8% in the year to March.

Separately, the Department for Communities and Local Government (DCLG) is likely to report that UK House Prices fell -13.0% in the year to March, the largest drop in at least 6 years. Rising unemployment and scarce credit access have kept buyers away from big-ticket purchases, sending property values lower. For those that already own a home, the decline amounts to a negative wealth effect, eroding the value of one’s assets to discourage spending and thereby keep a tight lid on economic growth. A survey of economists conducted by Bloomberg has estimated that the economy will shrink -3.7% this year.

Turning to the continent, the final revision of Germany’s Consumer Price Index is expected to confirm that inflation ticked up to 0.7% in the year to April from 0.5% in the preceding month. Currency depreciation and a holiday-linked spike in spending accounted for the increase: the Euro shed 2.1% on average against the currencies of Germany’s top non-EZ import partners, making imported goods comparatively more expensive for German consumers; meanwhile, the Easter holiday atypically fell on April as opposed to March this year.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar 'Certain' to Remain Global Reserve Currency, Says Bernanke (Euro Open)