Bernanke’s support for the U.S. dollar and Federal Reserve President Lacker’s comment this morning that the central bank is paying close attention to the value of the greenback has driven the buck higher against all major currencies. The last time Bernanke surprised the market with a comment on currencies was back in June.

According to the following chart, the EUR/USD fell 4 percent in the 2 weeks following Bernanke’s comment. However after a month of consolidation, the uptrend resumed. I am a long term USD bear Why The Dollar Could Fall Another 5-7 Percent but as a trader first and analyst second, I know that uptrends do move in straight lines. Shaking out the shorts are needed to get some fresh blood into the markets. Interestingly enough, a 4 percent drop in the EUR/USD would take the currency to 1.44, the former breakout zone. I think any drop will be limited to 1.4650-1.47.

 

Kathy Lien is Director of Currency Research at GFT, and runs KathyLien.com.