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Sometimes it's tough to be the most powerful person in the world; I'm talking about Bernanke who at least for today held the world's attention, with many looking for some kind of fiscal easing. What Ben said today is essentially that the Fed is not acting right now. There simply isn't enough evidence that employment is headed downward (one disappointing jobs report isn't enough to suggest a downtrend), or that deflation is on the way (oil still at $85), thus the Fed isn't obligated to change its policy. He gets a lot of flak from the media but today I think he deserves some props for making the right call. It's not his job right now, it's up to the EU to get their act together and come up with a solution, and if the US wants to alleviate any economic woes then it is the congress and the White House that should act first.
The market naturally followed Ben's comments with an intraday dollar boost (although it's still slightly down on the day), and an ensuing selloff in gold (-3%), silver (-3.4%) and oil (down to $85 from $87 intraday) among others. But I say the market is being too quick to boost the dollar and sell commodities today. I think that in the near term the bias for the dollar will continue to be to the downside. It is Europe that's going to go into action well before the Fed/USA. But, as per ECB chief Draghi's comments on Wednesday they aren't in a position to be printing money, either. That means the next move is going to be a euro zone effort, and it's going to be one that facilitates euro unity, as echoed by Merkel today. A few options include money injection into Spain's banks, a unified banking system, and eurobonds.
Whatever they choose, it's likely to be supportive of the euro, and that means the relative value of the dollar will fall. Whether or not said plan actually works in the long term is a whole other issue and one would be wise to be skeptical. However, look for this immediate-term rise in the dollar, and slide in gold and oil, to reverse itself as the market anticipates the next move by the EU.
Intraday Gold, Oil
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