Market Overview

The Complete Guide to Trading Bernanke's Upcoming Speech


The U.S. dollar index declined on Tuesday, as the U.S. dollar depreciated against world currencies. Despite rhetoric from Federal Reserve Bank presidents, traders may have fled the dollar on anticipation that the Fed would continue to keep its policy of loose money in place.

The Chairman of the Fed, Ben Bernanke, is scheduled to speak later in the day on Tuesday. The contents of his speech may shed light on the validity of this trading thesis.

Additionally, German Chancellor Angela Merkel is meeting with President Obama today in the White House. As reported by Bloomberg, Merkel recently stated that the European Union is committed to keeping the euro intact. Should Obama pledge U.S. support in their meeting, it could negatively affect the value of the dollar.

While the U.S. dollar is the official reserve currency of the world, the euro might be the world's second reserve currency. If the euro falters, the U.S. dollar might receive a boost, but if the euro stays intact, it presents a viable reserve alternative to U.S. dollars.

Action Items

Bullish: Traders who believe that Bernanke will express a willingness to keep monetary policy easy for the foreseeable future might want to consider the following trades:

  • SPDR Gold Trust (NYSE: GLD) a long play on gold. Gold has often rallied following a speech in which Bernanke has taken a dovish stance.
  • iShares Silver Trust (NYSE: SLV) a long play on silver. Silver, though admittedly more volatile, has often moved in the same direction as gold.

Bearish: Traders who believe that Bernanke will express a willingness to tighten monetary policy this year may consider taking positions in the following:

  • PowerShares DB US Dollar Bearish Index (NYSE: UUP) a long play on the U.S. dollar. If the dollar appreciates on expectations of hawkish Fed policy, UUP may do well.
  • ProShares UltraShort Gold (NYSE: GLL) attempts to return a value inversely corresponding to the price increase of gold. GLL may do well if gold decreases in price.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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