Dollar is mildly softer after Bernanke reiterated that unemployment rate will likely remain high for some time in spite of recent sharp fall. In the testimony to House Budget Committee, Bernanke said that recent non-farm payroll data do provide some grounds for optimism. But he also warned that output growth likely to be moderate for a while and companies are still reluctant to hire. He cautioned that several years is needed before unemployment rate returns to a more normal level. Though, he didn't repeat the time-table of four to five years in today's speech. Unemployment rate just had the biggest two month drop since 1958, from 9.8% in November to 9.0% in January.

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Bernanke also noted that inflation remains quite low in US. He said so far expectations of future inflation remained stable. Bernanke noted that inflation is expected to persist below the levels that Federal Reserve policymakers have judged to be consistent. Hence, high unemployment and low inflation called for continued support from Fed.

width=272Elsewhere, Euro is lifted mildly after Reuters reported that Bundesbank President will drop out of race to succeed Trichet as ECB chairman. New Zealand dollar was under mild pressure earlier today after Finance Minister English said that recovery in the country is having some challenges and there are possibilities of a double-dip recession. IMF deputy managing director Shinohara said that IMF starting to discuss how to assess SDRs, the composition of SDRs and the criteria to add a currency to SDRs if we decided to do so. But there is no target date yet.

On the data front, Australian westpac consumer confidence rose 1.9% in February. UK BRC shop price rose 2.5% . Japan household confidence improved to 41.1 in January. Machine tool orders rose 89.4% yoy in January. German trade surplus widened to EUR 14.0b in December. UK visible trade deficit widened to GBP -0.25b in December.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3569; (P) 1.3628 (R1) 1.3685; More.

EUR/USD's recovery from 1.3510 extends further in early US session and intraday bias is mildly on the upside for 1.3860 resistance. Though, we'd expect some resistance from there to limit upside and bring another fall to extend consolidations from 1.3860. Below 1.3610 will flip bias back to the downside for 1.3510 and below. However, even in that case, strong support should be seen above 1.3253 cluster support (61.8% retracement of 1.2873 to 1.3860 at 1.3250) and bring rise resumption. Outlook in EUR/USD remains cautiously bullish as fall from 1.4281 should have completed with three waves down to 1.2873. We'd expect rise from 1.2873 to resume sooner or later towards 1.4281 key resistance next.

In the bigger picture, main question remains on whether medium term correction from 1.6039 has finished with three waves down to 1.1875. The firm break above 1.35 psychological level again affirm the case that fall from 1.4281 was merely a correction only and whole rise from 1.1875 is still in progress. Also, note that break of 1.4281 will revive the case that medium term correction from 1.6039 was completed with three waves down to 1.1875 and the long term up trend might be resuming. On the downside, though, below 1.2873 will turn focus back to 1.1875 low.

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Economic Indicators Update

GMTCcyEventsActualConsensusPreviousRevised
23:30AUDWestpac Consumer Confidence Feb1.90%---5.70% 
0:01GBPBRC Shop Price Index2.50%--2.10% 
5:00JPYConsumer Confidence Households Jan41.140.340.1 
6:00JPYMachine Tool Orders Y/Y Jan89.40%--64.00% 
7:00EURGerman Trade Balance (EUR) Dec14.0B12.0B12.9B 
9:30GBPVisible Trade Balance (GBP) Dec-9.25B-8.6B-8.7B-8.5B
15:30USDCrude Oil Inventories1.9M2.2M2.6M 

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