Markets lacked guidance overnight with little in the way of market moving headlines coming over the wires and the Dollar managed to recover some of its losses seen earlier in the week as positions were squared on profit-taking. Rallies were limited, however, due in large part to the latest comments from Federal Reserve Chairman Ben Bernanke which were largely cautious on the US economy and questioned the sustainability of this year’s strong economic data.
Bernanke was asked about the possibility of additional rounds of quantitative easing, and his response was essentially that all options are still available. If anything, this is a more dovish response than markets would have expected and as long as these types of comments are seen, the longer term upside in the US Dollar will be limited. Most of the market is expecting that we will not see additional quantitative easing stimulus in the US but, as is generally the case, even simple rhetoric from central bank officials can have an effect on trader sentiment.
Macro data did show that the US Conference Board’s Consumer Confidence survey dropped to 70.2 for the month of March, but the numbers are still relatively strong given the 61.5 figure that was seen in January. The Case Shiller Home Price Index came in unchanged for the month, which is above the market consensus of -0.3 percent. Today, markets will be watching the Durable Goods Orders, with the consensus looking for a gain of 3 percent.
In Europe, Italian Prime Minister Mario Monti made optimistic comments, saying that the debt crisis in the Eurozone is coming to an end, citing the success of the ECB’s Long Term Refinancing Operations (LTRO), which allowed interest rates in Italy do head lower. The ECB President (Draghi) also said that governments within the Eurozone need to maintain their resolve and enact decisive policies so that the success of the LTROs can be built upon and the stabilization in the financial markets can take hold.
In the UK, the BoE Governor followed Bernanke’s lead and suggested further rounds of QE are still possible but that it is not clear at this point if additional stimulus will be necessary. He did say that if more asset purchases become necessary, the BoE will focus on conventional Gilts rather than other instruments.
The USD/CHF is pushing lower, caught in a falling wedge formation and given that we have fallen through all of the major Fibonacci levels on the 4H charts, a full retracement to the historical lows at 0.8940 is now the next target. The bias is to the downside as long as 0.9130 resistance holds, as this would invalidate the falling wedge and break through the 100 period EMA. Long positions preferred into sub 90 support levels for a longer term run higher.
The S&P 500 continues to trade near its yearly highs, with prices showing a small retracement back into the psychological 1400 level. This is not the short term line in the sand, as and failure here will likely lead to a negative session. More significant support, however, is seen at 1380, as Fibonacci and historical levels match with the 200 EMA projections. Buy dips to 1380 is the preferred short term strategy.