Bernanke Calls for Accommodative Currency to Further Help Labor Market

Key for today's markets was the bit of red meat thrown out by Bernanke to those still looking for QE3. In a speech about the labor market - which continues to be of paramount importance when considering future Fed action - Bernanke referred to the need for continued accommodative monetary policy.

From Bloomberg: Reducing the jobless rate further will probably require a quicker expansion of business production and consumer demand, which can be supported by continued accommodative policies, he said.

A wide range of indicators suggests that the job market has been improving, which is a welcome development indeed, Bernanke said to the National Association for Business Economics. Still, conditions remain far from normal, as shown, for example, by the high level of long-term unemployment and the fact that jobs and hours worked remain well below pre-crisis peaks, even without adjusting for growth in the labor force.

The Fed chairman also said the slow growth in wages was consistent with his belief that weak demand was most responsible for high unemployment.

Bernanke's call for more accommodative policy, which essentially means low interest rates, helped promote fund flows in commodities and helped start the week on the back of a generally risk-on tone.

Will Bernanke's comments be enough to give a further boost to commodities and equities, and thereby weakening the USD?

That would suggest that market participants, after seeing one of the first significant pullbacks this year, were not deterred by weaker economic data last week, and may be ready to use any positive developments to push higher. We highlighted the positive development for the EUR - that Merkel was ready to increase the total funding capacity of the European bailout funds (ESM and EFSF).

Gold Hits 2-Week High

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Gold rallied, breaking above a key resistance level from last week at $1665, hitting a 2-week high. Whenever we have Bernanke give the market any indication of more easing, or that the Fed will keep rates steady for longer, it usually helps gold. Better equities also helped to push up gold which is correlated with risk assets at the moment.

Copper Pushes Higher in Consolidation

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Copper had a strong day as well, pushing higher in its recent range, and coming close to attacking a downward sloping resistance trendline. Commodities in general tend to do better when the theme in the market is the possibility of more easing, or lower rates for longer message from the Fed. We were watching copper to see which way it breaks, which could give us an indication as to the expectations by the market for economic growth going forward. We continue to monitor the 200-daily and 50-daily EMA's as the 50-day crosses above the 200-day, giving a positive signal for technical traders.

US Dollar Weakens Extends from Friday

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Bernanke's comments sent the USD weaker across the board, not just against commodities but also against key currency pairs like the EUR, GBP, AUD, and others. The Dollar index extended its decline started 2 weeks ago after it had reached a 61.8% retracement of the downswing seen from mid-January through late February.

We cover these markets and their impact on key currencies in our daily Market Intelligence Briefing. For information on special subscription rates for FXTimes briefings, click here.

Nick Nasad is a macro economist, market analyst, and educator; and one of the main contributors to  FXTimes.com - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.