Fed 'will strongly resist' deflation: Bernanke

Fed 'will strongly resist' deflation: Bernanke
Economy will grow in second half, pickup in 2011

JACKSON HOLE, Wyoming (MarketWatch) -- Federal Reserve Board Chairman Ben Bernanke said Friday that the central bank would not sit idly and let the U.S. economy sink into a period of deflation.

"The Federal Open Market Committee will strongly resist deviations from price stability in the downward direction," Bernanke said in a speech opening the Fed's annual summer policy retreat. See related First Take on Bernanke speech.

Bernanke downplayed concern that the economy would fall back into another downturn, or a double-dip recession. He said the economy would continue to grow at a slow pace in the last four months of the year and the pace of growth would pick-up in 2011.

Bernanke said there was only a low risk of deflation. But he acknowledged that inflation has dropped to a level slightly below that which FOMC participants view "as most conducive to a healthy economy in the long run."

But he spoke at length about the tools left in his toolkit to fight deflation and promised to use them if the outlook deteriorated significantly.

Responding almost directly to an op-ed published Thursday by ex-Fed vice chairman Alan Blinder saying the Fed was running low on ammo, Bernanke said: "The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do. As I will discuss next, the issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool."

At the top of his list of options -- more purchases of Treasurys by the Fed. Bernanke said these purchases would ease financial market conditions.

He said the central bankers thought that buying Treasurys was the proper course of action but noted "we do not rule out changing the reinvestment strategy if circumstances warrant."

Bernanke said the FOMC "has not agreed on specific criteria or triggers for further action."

U.S. stocks turned lower after the Bernanke speech was published, though his speech also coincided with a revenue downgrade by the world's leading chipmaker, Intel.

In early August, the Federal Open Market Committee took a baby step toward further quantitative easing by deciding to hold the size of the Fed's balance sheet constant through reinvesting principal repayments from mortgage securities into Treasurys. Bernanke described that option Friday as avoiding "an undesirable passive tightening of policy that might otherwise have occurred."

A slowing economy has caused the Fed to swiftly reconsider its policy stance - shifting away from an exit strategy towards consideration of further easing.

The economy is slowing at a time when the Fed has already cut interest rates to close to zero. Since March 2009, the Fed has promised to keep rates low for an "extended period."

Bernanke said the FOMC would consider modifying the language to communicate to investors that it plans to keep the federal funds rate low for a longer period than is currently priced in markets.

He also said the Fed could lower the rate of interest the Fed pays banks on the reserves they park at the central bank, though he stressed that the effect in isolation would likely be relatively small.

One policy option Bernanke rebuffed was to increase medium-term inflation goals above levels consistent with price stability. "I see no support for this option on the FOMC," the central bank chief said.

He didn't mention buying private assets like credit-card receivables or corporate debt, as some economists, including Blinder, suggest.

Oil trades below $73, gold reverses after Bernanke

(MarketWatch) -- Crude oil futures waded deeper into the red and gold futures turned lower as Federal Reserve Chairman Ben Bernanke delivered remarks at the Fed's annual summer policy retreat in Wyoming. Crude for October delivery declined $1.22, or 1.7%, to $72.11 a barrel on the New York Mercantile Exchange. Before Bernanke, oil had stayed above $73 a barrel. Gold for December delivery retreated $2.10, or 0.2%, to $1,235.50 an ounce, whereas it had added about $4 prior to the comments. Bernanke said the Fed had not agreed on specific stimulus measures although it would not sit idly and let the economy sink into deflation.

Technical Analysis for EUR/GBP

The pair's attempts to breach the main channel's resistance provide a valid prove for an upside trend. The stochastic and the RSI oscillators is still showing an upside curve on the daily scale, encouraging an expectation that the pair will accomplish, breach and stabilize trading above the main resistance at 0.8213, accordingly, we expect an upside trend for the remainder of today.

The trading range for today is among the key support at 0.8066 and key resistance now at 0.8315.

The general trend over short term basis is to the downside targeting 0.7780 as far as areas of 0.8965 remain intact.

Support : 0.8180, 0.8140, 0.8105, 0.8080, 0.8060
Resistance: 0.8215, 0.8235, 0.8255, 0.8295, 0.8315

Recommendation Based on the charts and explanations above, our opinion is buying the pair around 0.8180 targeting 0.8290 and stop loss below 0.8100 might be appropriate this week

Nikkei Merosot, Terseret Turun oleh Saham Teknologi & Eskportir

Indeks rata-rata Nikkei turun 1% hari Jumat, terkait turunnya saham teknologi dan eksportir setelah merosotnya Wall Street karena kegelisahan perkiraan ekonomi sebelum revisi penurunan sebelumnya untuk pertumbuhan ekonomi.

Asahi Breweries menguat 0.4% setelah mengatakan hari Kamis perusahaan tersebut akan membeli produsen juice, P&N Beverages senilai A$364 juta ($322 juta), membuatnya menjadi produsen minuman ringan terbesar ke 2 dunia.
Indeks Nikkei dibuka melemah di 8,810, sementara indeks Topix anjlok 0.8% ke 805.24