Its full speed ahead at the Federal Reserve as Mr. Bernanke showed no sign of letting up on asset purchases until the current open ended QE program, where the central bank purchases 80 billion is Federal and federally insured mortgage-backed securities, has achieved its objective of lowering unemployment to 6.5 percent. Some pairs whip sawed a bit during Bernanke's comments, especially when the Chairman stated the FOMC is constantly monitoring the proper level of monthly asset purchases and that the gross number may be reduced if the recovery firms up. However, overall tone of the press conference conveyed a steadfast commitment to the extraordinary measures taken since 2008 to boost the economy and repair broken credit markets. USD was marginally lower against most majors, but the general interpretation of the news can be 'risk-on.' Indeed, USD/JPY was up on Bernanke's reaffirmation of QE programs. EUR/CHF, another indicator of risk sentiment, also bounced.
South of the border, the Mexican Peso continues its bull run. Techs had been hoping to get long USD/MXN at 12.39 given that the pair had been well supported at this level in the past few days. This trade again shows the danger of relying of technical indicators or 'charting,' especially when your trade goes against the countervailing longterm trend driven by the fundamentals. Thompson Financial was suggesting clients buy at 12.39 and target 12.80, the 200 day moving average. This is sloppy analysis. Its crazy to hope for a near 100 percent retracement of the Peso's recent gains, especially in a risk-on, recovery focused environment. Fading the pop can be a viable strategy, but this is not the way to do it. All in all, I'd look for further downside on USD/MXN as the spec longs run for the exit as the week ends. I sold at 12.35 with a target around 12.2 this afternoon. I also have a larger offer at 12.43.
On a more personal note, I am spending the weekend in Montreal, so I am hoping for a rally in USD/CAD this Friday. I am long CAD/CHF, though, so whatever exchange rate I end up paying, I am most likely fully hedged!
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