FOREX NEWS

I spoke yesterday about a duality that exists when Central Bank figure heads, like Ben Bernanke and Jean-Claude Trichet of the US and EU Central Banks, Respectively, straddle political affiliations with fair representations of their economies. My assessment yesterday was that both of them have toned down their views to appeal to a political agenda, rather than giving accurate interpretations of what is going on. One week they say this, and one week they say that was the thought. Yet, after Chairman Bernanke gave his report to Congress yesterday, he seemed to play both cards on the same day – in the span of an hour, in front of the same panel, painting optimism and caution all at once.In his remarks, the Fed Chairman said that he believes that the economy is moving along well for the situation and that he feels that the US can and will see growth in the coming months – that the recovery is poised to begin in the latter part of 2009. Yet, only 15 minutes later he began to speak of a high unemployment rate, one that is at levels that were unanticipated, one that is expected to continue to grow through the end of the year. He also spoke of a tight credit market which is squeezing consumers, even ones who traditionally have had great credit are finding it hard to manage in this climate. He spoke of record low real-estate prices which inhibit refinancing and have caused many relying on income from property bought at high prices to take monthly losses from leases and rental agreements.As Mr. Bernanke spoke, the Dollar, which was down most of the day on a continued risk appetite rally, turned upward, then downward, then upward again – as if the Forex traders and those Forex online professionals tracking his words on the internet could not figure out where he was going. This is a problem, a big one as I see it, because Mr. Bernanke’s role was, traditionally, to sober up the euphoria that exists or confirm that all is OK – not paint two pictures with one speech. His predecessor, Alan Greenspan, was noted for his “party-pooping” ways – not giving in the political agenda’s of the administrations he served under – he served four presidents from Reagan to Bush 2. Greenspan called the internet bubble two years before it happened – “irrational exuberance” he called the fervor with which public offerings were being valuated. He criticized presidential policy when he thought it was harming the economy – like with his testimony in Congress over Bill Clinton’s proposed health care reform – which ultimately failed before it even got to a vote in Congress. This is the kind of honest and unbiased judgments the Central Bank chair needs to give – and what Bernanke did was coddle the administration of Obama, colluding with them so as not to cause any panic that might jeopardize Obama’s policy initiatives.Forex traders are becoming less trustful of the Central Bank heads, and it is a problem as this is how fundamental trading is done. It used to be a reliable source of information that would directly affect the currencies of a specific country – now it is taken in stride like a stump speech before an election. Obama is looking to overhaul the Health Care system by pushing through a bill that will cost more than 1 Trillion Dollar according to the Congressional Budget Office. This is a bill he has even acknowledged that he has not read – and is making contradictory statements about what it contains because he really has no idea what is in it. A dire economic outlook would kill it – and trust me, it is losing support by the day right now. Bernanke for his part, is up for re-nomination in January. It is widely expected that Obama’s senior political advisor, Larry Summers, will be the one tapped for the role instead of Bernanke, who was a Bush 2 appointee. Bernanke would serve his job better, serve the people of America better and serve the Forex traders better if he would focus on his current job, and not worry about keeping it come next year. Chances are, he is not even in the running now anyway, and all this back and forth to help Obama is not going to change that.

(KAKAR)

• Sentiment-based Momentum Giving Way to Judicious Fundamentals• Monetary Policy Efforts Reveals a Building Divergence in Growth and Inflation ForecastsThe sharp rally that opened this week seemed to confirm that the next wave of a five-month bull trend was underway. However, this optimistic outlook was immediately deflated when momentum failed support the transition. What is the source of this hesitation? Fundamentals. Risk appetite and broad economic growth are two separate conditions. Generally, the former follows the latter; but when speculation is involved, inconsistencies often arise. Tracking sentiment since the beginning of the year, we have seen a clear evolution from a market that was attempting to establish stability after a financial crisis to one that was expanding as idle capital returned and yield forecasts rose. At this point, the reversal is unmistakable; but then again, this does not mean it is permanent. The more traditional asset classes have cleared their highs for the year; but the drive behind this rally has certainly eased. Equities, represented by the Dow Jones Industrial Average, have stalled over the past three days. In a similar fashion, the speculative-receptive commodities market has pulled back from its own highs without a clear level of resistance overhead. Alone, these asset classes would suggest risk appetite is health, just taking a breather. However, in the currency market, the conflict is more obvious. Looking beyond the 10-month high for the carry index itself, we have seen the US-dollar based majors stall immediately after mark-wide break against the greenback. And, ensuring that this is not just the dollar break from sentiment, the yen crosses have themselves yielded ceded to resistance.Looking at the market’s as a whole, we are left to believe that a recovery is well under way. However, the developing trend behind investments is as assured as the revival of growth – that is to say, it is still highly uncertain. It is important to separate the influences of sentiment from the true foundation of economic expansion. Clearly, data over the past half year has supported the notion that the worst of the global recession is likely past and perhaps that positive growth is on the horizon. Coming from a record-breaking recession and ongoing financial crisis, this turn would naturally bolster confidence. A sense of stability is certainly enough to draw sidelined capital back into market-based assets (and thereby inflate their values); but to promote a true bull wave, turnover has to be catalyzed by the promise of rising returns and tangible growth has to produce wealth. The global economy has not yet graduated to this phase. Growth readings to this point have merely reported a moderation in the pace of the ongoing recession. Officials from many of the world’s largest economies see expansion at or after the turn of the year. Yet, even if this milestone is reached, growth from that point is forecasted to stagnate. To this point, government spending and stimulus has been the primary engine for improvement. Policy makers may be able to keep this scaffolding in place long enough for lending to fully thaw and business investment to revive; but the consumer is the key in this equation. Now the question becomes whether those countries with positive growth (China, Australia) will fold under the pressure.isk Appetite Provides Little Follow Through

The Pound has been a weak performer over the last couple of days as we forex traders discussed. This is a result of the BOE's surprise last week coupled with general risk aversion in the markets. However this rationale is outweighing the steady flow of better than expected numbers - the latest being the RICS House Price Balance showing a -8% reading. Are we to expect that there is sustainable UK housing appreciation? Hardly. If the US Federal Open Market Committee helps to set off a further round of treasury buying as they have in the past few auctions, then the JPY will continue to be the star performer here in the near term and we can expect downside momentum in GBP/JPY, which recently saw its attempt above the previous 162.50 area high firmly rejected.

MR.KAKAR