It has been another quiet morning in the foreign exchange market as the EUR/USD and other major currencies trade in narrow ranges ahead of Bernanke’s speech on Friday. With this week’s economic data and Beige Book report providing no new insight into what the Fed Chairman will say at Jackson Hole, investors are biding their time and keeping pre-positioning at minimum before the big event.

A flurry of weaker U.S. economic failed to have much impact on the U.S. dollar. The greenback sold off slightly but the knee jerk reaction was minimal. Jobless claims steadied at 374k for the week of August 25th but only after a 2k upward revision to last week’s number. While the revision and disappointment in claims are small, job losses are growing slowly which does not bode well for next week’s non-farm payrolls report. The 4-week moving average of claims rose to 370k from 369k while continuing claims rose to 3.316 million from 3.321 million. The U.S. economy is still expected to report positive job growth in August but jobless claims are telling us that job growth could fall short of 100k.

Americans are also making less and spending more according to the personal income and personal spending reports. Incomes grew a mere 0.3 percent last month while spending increased 0.4%. Both reports also fell short of expectations but spending rose for the first time in 3 months. It is under these confusing and challenging conditions in the U.S. economy that the Federal Reserve Chairman will be delivering his annual speech in Wyoming and in our opinion, Bernanke does not have enough evidence to make any definitive commitments to monetary policy on Friday.

Across the Atlantic, weaker economic data and higher Spanish bond yields offset a smooth Italian bond auction and EUR positive comments from China. German unemployment was revised higher in July from 7k to 9k and increased by the same amount in August. While China’s vote of confidence for the euro is important, the rise in Spanish and Italian bond yields suggests that stronger auctions have not done much to reduce the risk premia in the market. Spanish 10 year yields have moved sharply higher over the past week while the EUR/USD has quietly consolidated and sooner or later, either currency or bond traders will be prove wrong.

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