USD gains ground ahead of Bernanke speech

Forex: The USD gained some ground in Asia, with traders positioning for an important speech from the Fed's chairman. EUR/USD drifted all the way down to 1.4860, while USD/JPY jumped above 109.00. On the USD/JPY downside, 108.15 (Aug 6 low) is expected to provide some support, with traders hearing rumors of option strikes at 108.00 (valued at $200M) rolling off on Friday. Despite talk of exotic option barriers at 0.7200 being defended, NZD/USD traded sharply lower, while short-term traders bagged some profits on the recent AUD/USD gains. For USD/SGD, traders say German and Swiss banks are selling ahead of resistance at 1.4060, with stronger resistance seen at 1.4080.

Bank of Japan board members said that the global slowdown is starting to affect Japanese exports, minutes from the July 14-15 meeting showed. Members also feel that second round inflation effects remain limited. 'Many members said that wages had not risen markedly in Japan and to date there had been no sign of second-round effects from the rise in prices of petroleum products and food,' the minutes showed. Members said that firms were more inclined to pass on higher costs, but one member argued that Japanese consumers are getting accustomed to rising prices. All members agree that downside risks to the global economy remained elevated due mainly to a slowdown of the U.S. economy. The Bank of Japan is more concerned with growth than inflation, since there remains 'considerable uncertainty regarding when and how the negative feedback loop between financial markets, asset prices, and economic activity would diminish'.

The IMF First Deputy Managing Director John Lipsky said that 2H08 U.S. growth is likely to be below trend. Lipsky added that emerging economies are slowing, but growth remains above trend. He argues that emerging market inflation may need more policy action, and urged China to be more flexible on the CNY rate.

Equities: At 23:21 EDT Japan's Nikkei is -0.67%, the S&P/ASX200 is 1.06%, South Korea's KOSPI is -2.18%, and the Shanghai composite index is -2.47%. The S&P500 futures contract lost -0.15% since the U.S. close, last trading at 1,273.60. The Nikkei remains in the red ahead of the weekend, with investors staying on the sidelines ahead of Bernanke's speech. A rising JPY and surging oil prices also weighed on sentiment, with financials and exporters leading most of the downside. The rebound in commodity prices emboldened bargain hunters to buy Aussie resource stocks, pushing the S&P/ASX200 above 4,900. Technology companies, airlines and brokerages generally traded lower in Seoul, while Shanghai-listed stocks traded sharply lower as optimism for a stimulus package fades. Hong Kong markets were closed due to a tropical storm warning.

Commodities: Nymex crude oil prices added on to the gains made during the U.S. session, adding 0.18% between 18:00 EDT and 23:18 EDT to trade at $121.40/oz. Spot gold gained 0.15%, last trading at $840.20/oz