EUR/USD
The setback off 1.4442 is significant, and likely to extend down to 1.4191. The 1.4442 high has already become a potential near-term bull failure, and a push below 1.4283 would pave the way for more weakness to the intraday lower high at 1.4191. Confirmation of a bull failure will have to wait until the 1.4191 low is broken. There is scope for a recovery to the 1.4365/50 area, but only above 1.4405 would suggest a return to 1.4442 is possible.
GBP/USD
The 1.6000 level is under threat for the first time since April, following Wednesday's wide-ranging bearish outside day. A break below support at 1.5997 is expected to expose the Mar. 28 higher low at 1.5937, and meeting downside targets at 1.5901 and 1.5859 is the immediate threat. Corrective gains are limited to 1.6201, which is protected by 1.6150.
USD/JPY
The setback off Thursday's Asian session high at 80.65 will look to establish a new range floor above 80.33. Wednesday's late strength keeps the psychologically-important 80.00 level intact, and while support at 80.33 holds, the range high at 80.65 will come under fresh USD bull pressure. The important June 15 high at 81.08 lies above 80.65.
AUD/USD
Resistance at 1.0653 has put the June 16 low at 1.0478 back under threat. The short-term downtrend is still intact, if somewhat indecisive, and a push below 1.0513 would expose 1.0478 and the May 25 reaction low at 1.0441. A recovery above 1.0625 is required to question the bearish AUD outlook, opening 1.0653.
FOREX FOCUS
Counting on a dollar rally just now could be expensive. Yes, a recovery in the U.S. currency is more than likely underway. But, with the U.S. Federal Reserve downgrading its forecast for the U.S. economy and with the risks of a U.S. default remaining high, few investors will want to start placing bets just yet. The immediate concerns over the dollar stem from the FOMC meeting this week and Fed Chairman Ben Bernanke's confirmation that U.S. growth is going through a "soft patch." As he had hinted previously, Bernanke suggested that market liquidity would be preserved but, with inflation pressures on the rise, the central bank has no intention of replacing its QE2 measures with a QE3 when they run out at the end of June. The dollar may have taken a little comfort from this but U.S. Treasury yields suggest that there is little market expectation for an early move to tighten monetary policy. Yields on 10-year Treasurys, which traded up at 3.01% right after the FOMC meeting and Bernanke's press conference, have since fallen back to about 2.96%, nearly as low as the 2.95% level seen just before the meeting started. Some market watchers have suggested that the dollar's post-FOMC bounce may well have had more to do with position-covering rather than any new lease of dollar support. This isn't surprising, not only because the dollar will remain of limited attraction with yields remaining under 3% but because Congressional wrangling over a new U.S. debt ceiling still leaves the country open to default. If a solution isn't reached by August 2, when 'extraordinary measures' for funding the U.S. deficit run out, the U.S. Treasury will essentially have no more money and the U.S. government won't have the authority to raise any more either.
EUROPE
A steady stream of bad news slammed the euro, and other currencies seen as risky bets in European trading hours. The dollar, yen and Swiss franc were among the chief beneficiaries in European currency trading Thursday as weak data in China and Europe added to nagging economic fears, hopes for further U.S. credit easing were dashed, and the unresolved Greek debt crisis rumbled on. "There are negative signals coming from all regions. Everywhere you turn, there's negative news," said Ian Stannard, a currencies analyst at Morgan Stanley in London. The pound hit record lows against the Swiss franc and New Zealand dollar, and fell below $1.60 against the dollar for the first time in almost three months as traders continued to put back their expectations for a U.K. interest rate rise. Meanwhile, the euro slipped below $1.425 against the buck due to concerns related to Greek efforts to tweak key austerity measures ahead of an all-important parliamentary vote next week. Although Federal Reserve Chairman Ben Bernanke late Wednesday did not completely rule out further bond purchases once the current round ends later this month, he indicated it was unlikely, spurring overnight demand for the buck that continued during the European morning session.
ASIA
The dollar slightly strengthened against major currencies in Asia Thursday as short-covering continued to kick in after U.S. Federal Reserve Chairman Ben Bernanke on Wednesday quashed speculation of any further credit easing. The greenback got a boost as traders who had gone short were forced to unwind their positions due to the dollar's upward momentum from the start of the session. But the dollar's rally fizzled out by midday after the completion of short-covering amid a lack of follow-through buyers. Some market participants had speculated that the Fed might signal a further credit easing since the U.S. economy has been faltering," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Bank. "But the fact is it didn't. And the outcome induced short-covering," she added. While Bernanke didn't entirely rule out another round of bond purchases, he made it pretty clear such a move is unlikely. Bernanke also said there is no longer a risk of deflation. "Low risks of deflation effectively rule out further aggressive monetary stimulus," said David Rodriguez, quantitative strategist at DailyFX Research Desk, adding that "the dollar may continue to recover as the Fed wraps up its controversial purchases of U.S. government debt at the end of June."
WORLD
Federal Reserve Chairman Ben Bernanke Wednesday quashed speculation about another round of stimulative bond purchases, boosting the dollar. Speaking after the Federal Open Market Committee's policy statement was released, Bernanke did not say outright that further easing would never occur, but he made it pretty clear that such a move is highly unlikely. The current Treasurys purchase program -- known as QE2 and winding down at the end of this month -- sought to stimulate the U.S. economy by flooding the markets with dollars, a move that also diluted the dollar's value. The market took Bernanke's comments as a sign of "deep reluctance to go down the road of QE3," said Paresh Upadhyaya, director of G10 FX Strategy at Bank of America-Merrill Lynch in New York. Such a signal was dollar positive, Upadhyaya added. The euro gave up modest gains and the dollar strengthened to its session high against the yen during the news conference, the second such occasion Bernanke has taken questions from the media following a Fed policy meeting. The dollar had been trading in a narrow range against the euro heading into the news conference as the Fed's statement released before Bernanke spoke was little changed from its last statement. The Fed continues to expect economic growth will pick up later in the year, but that the Fed funds rate will remain at current historic lows indefinitely.
