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USD

On Monday, in our Daily Market Analysis, we mentioned Fed Bernanke's testimony before the senate yesterday as a probable market moving event of the week, and indeed, we were not disappointed. Although the USD's sell-off began even prior to Bernanke's testimony, it was only when Bernanke was on the wires that the EURUSD surged as high as 1.3150 and the GBPUSD as high as 1.9640, completing a daily 130 and 180 pip incline, respectively.

While the markets were preparing themselves for relatively hawkish testimony, possibly even implying an additional rate hike soon, Bernanke's testimony was quite the opposite, actually. In his speech, the Fed Chairman commented that "there are some indications that inflation pressures are beginning to diminish". Bernanke also noted that "So far, the incoming data have supported the view that the current policy stance is likely to foster sustainable economic growth and a gradual ebbing of core inflation". This has left the markets with no other interpretation to Bernanke's words than that of "no rate hike soon", while Central Bank Governors across the Atlantic express themselves with a far more hawkish tone. Consequently, markets punished the USD and the currency finally breeched out of its 4 week trading range against the EUR.

Prior to Bernanke's testimony, US Retail Sales data was released. US advanced retail sales came in unchanged in January, short of consensus expectations of a 0.3% rise, while retail sales ex autos rose 0.3% m/m on expectations of 0.4%. Although upward historical revisions helped to somewhat offset the report's negative tone, the report only exacerbated the already dollar bearish bias that governed the markets through the day.

Today's US calendar includes Import & Export Price Index, data that will probably be ignored as it is released side by side with the Empire State Manufacturing Survey, the first regional Fed survey released this month. The Empire State Survey is expected to edge 1.4 pts higher and print 10.5. Markets will scrutinize the report, especially after the last ISM Manufacturing survey which released at 49.3, below the boom/bust level. Also due out today are the highly important TIC report (Treasury International Capital), Industrial Production & Capacity Utilization data, the Philly Fed Survey, the NAHB's (National Association of Home Builders) Housing Market Index, and further testimony by Bernanke. Given the current dollar bearish sentiment and the loads of data we are expecting, we assume it won't take a significantly lower than expected figure, comment, or data to continue USD's sell-off.

EUR

There were no significant releases from Europe yesterday, and nevertheless the EUR surged higher all across the board. The EUR's relative strength is attributed both to some of its counterparts weakness and to the positive economic data that came from Europe in the last two days. Hawkish comments by ECB officials add even more fuel to the fire, allowing the EUR to break out of its month long sideways trend against the USD and conquer a new all time high against the CHF at 1.6286. The only EUR event on the tap today is ECB's Trichet speech at 13:00, but we believe there isn't going to be any new information in that speech. All in all, the EUR's value is going to be determined mostly by external events today, but we side with the bulls.

Across the channel, the Bank of England released its Inflation Report which sounds pretty much the same as the ones we heard elsewhere; Healthy growth and cooling inflation. In its last meeting, the BoE Monetary Policy Committee voted to leave interest rates unchanged, but only with the release of the minutes next week we will know how close we were, if at all, to an additional rate hike. On the UK's calendar monthly Retail Sales are due out. We haven't seen a lot of positive data from the UK lately so a reading above the 0.2% f/c might very well prompt a GBP rally.

JPY

At last, some positive economic data from Japan. Q4 preliminary GDP growth beat expectations of 0.9% and released at 1.2%. Although the previous GDP reading was downwardly revised to 0.1% from 0.2%, the headline figure is certainly good news for the Japanese economy. Following the release, the USDJPY dropped by nearly a hundred pips and visited for its first time in a month below the 120 level. The GBP's reaction was a little more extreme, and the pair dropped by nearly 200 pips to 235.24.

Traders longed the JPY following the reports because they saw the better than expected GDP figure increasing the possibility that the BoJ would finally raise its interest rates. However, we do not see how exactly this excellent growth number interprets into a rate hike just yet. True; economic growth slowly returns to its path, but the GDP Deflator (an inflationary measure) published at only -0.5%, recent wage growth readings indicates no supply side inflationary pressures; it seems to us that the BoJ is right in postponing the anticipated rate hike. And even should the BoJ not raise rates- when would the next rate hike be? July might be a good answer.

The JPY's rally can very well continue, fueled by speculations on an impending rate hike, but we see stronger possibility for some basing around these levels and perhaps even a retracement.

Technical Analysis

EUR/USD

The pair is continuing the ongoing four days rally up and is now testing 1.3150.

Daily charts are very bullish, supported by moderately bullish hourlies. Key resistance is 1.3180, which is the 61.8 Fibonacci of the 1.3365/1.2870 move.

GBP/USD

The 1.9600 level was breached overnight, and is now floating around the 1.9650 level. Oscillators show that the momentum up is very strong, as the daily studies confirm. Hourlies are still very much overbought, as the market awaits the unwinding.

USD/JPY

The pair has breached the 120.00 level, and it looks like the downtrend is not about to stop. The daily RSI shows a very strong downtrend sentiment and the daily charts are heading south. The hourlies are unwinding from oversold levels, meaning that traders are shorting the pair, as next target price is 119.40.

USD/CHF

The pair broke through 1.2375, which was the lower barrier of a one month trading range. Daily charts are heading lower, with plenty of room to run. Hourlies support and are not oversold yet, creating a bearish sentiment for the pair.

Wild Card

CAD/CHF

A great opportunity for forex traders, as the pair is now peaking at the upper edge of a very stable one month range. Daily studies supported by very distinct hourlies, strengthening the notion that the pair is heading towards a very bearish day with plenty of room to run before reaching the lower boundary of the range.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.3222	1.9770	121.36	1.2538	0.7930	0.6792
	1.3200	1.9725	120.67	1.2470	0.7900	0.6742
	1.3162	1.9670	120.18	1.2437	0.7876	0.6706
Support	1.3095	1.9604	119.49	1.2340	0.7812	0.6646
	1.3041	1.9526	119.24	1.2295	0.7793	0.6600
	1.3023	1.9422	118.77	1.2257	0.7739	0.6576

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
15/02/07	09:30	GBP	Retail Sales m/m		1.1%	0.2%
15/02/07	11:00	EUR	ECB President Trichet Speaks
15/02/07	13:30	USD	Empire State Business Conditions Index		9.1	10.5
15/02/07	13:30	USD	Import Price Index	m/m	1.1%	-0.2%
15/02/07	14:00	USD	TIC Report	DEC	68.48B	60.0B
15/02/07	14:15	USD	Industrial Production	m/m	0.4%	0.0%
15/02/07	14:15	USD	Capacity Utilization Rate	JAN	81.8%	81.8%
15/02/07	15:00	USD	Fed's Bernanke Testifies Before Senate on Monetary Policy
15/02/07	17:00	USD	Philadelphia Fed Manufacturing Index		8.3	3.5