Via SocGen, here is how stocks, bonds, and three major currency pairs have traded on the days that Federal Reserve chairman Ben Bernanke has delivered his semi-annual testimony to Congress, going back to 2007:
Photo: Societe Generale
The results are a bit mixed. SocGen’s head of rates research, Philippe Meyer, does have a few things to point out, however:
Despite the low probability of a Bernanke bombshell tomorrow, it is still worth taking a look at how markets have responded in the past to what is still a seminal event to most currency and bond market veterans. The surprise factor may have diminished somewhat over the last few years owing to the long policy distance already travelled by the Fed to contain the financial crisis, but moves of around 1% in the current environment are possible and would still catch out some participants and force others to cover.
Meyer thinks the euro may especially be prone to a move:
Mindful of the ubiquitous bearish EUR views – CFTC data for last week showed a resumption of speculative short EUR flows – any subtle but unexpected shift in pro QE3 rhetoric by the Fed chairman would almost certainly put the EUR/USD on course for a test of the July 10/11 highs situated at 1.2297/1.2334. The table shows that moves in the EUR/USD have on average over the last three years been larger in July than the February testimony.