Daily Report: Dollar Rebounds as Middle East Drives Risk Aversion, Gold at Record High

Risk aversion is back driving the markets on news of clashes between opposition supporters and Iran's security forces in Tehran. Gold jumps to new record high of 1435.6 on safe haven buying while WTI crude oil is back above 100 level. Fear of spreadover of unrest in Middle East also trigger selling in stocks where Asian equities are broadly lower and deep in red following -1.58% fall in DOW overnight. Dollar reacts positively this time and recovers against other major currencies, with support from yesterday's strong manufacturing data and Bernanke's comments.

In his semi-annual testimony to Congress, Fed Chairman Bernanke sounded optimistic on the economic outlook as he noted " increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold" even though "job growth remains relatively weak, and the unemployment rate is still high." Regarding inflation, Bernanke downplayed recent surge in commodity prices and said that "not yet pose a significant risk" but warned that a prolonged rise in oil prices would hurt the US economy. Bernanke also outlined the criteria for stimulus exit again that's when "self-sustaining recovery and employment is beginning to improve and labor markets are improving, and meanwhile that inflation is stable, approaching roughly 2% or so."

New Zealand dollar is the weakest currency today, shot down by comments from Prime Minister Key. Key said that "the market has priced in a cut from the Reserve Bank.... and that would probably be my expectation, that the Reserve Bank would cut." Expectations for a cut on March 9 meeting are building up after the deadly earthquake in Christchurch last month, which would pressure a economy which is near recession.

On the data front, Japan monetary base rose 5.6% yoy in February. Australian GDP came in at 0.7% qoq, 2.5% yoy in Q4. UK PMI construction, Eurozone PPI will be released in European session. US job data will be a main focus today where ADP employment report is expected to show 185k expansion in the private sector jobs in February. Bernanke will have the second day of his semi-annual testimony and Fed will release the Beige Book economic report.

Dollar index recovers after dipping to 76.74 yesterday. Considering mild bullish convergence condition in 4 hours MACD, we'd likely seen some more recovery ahead, possibly to 4 hours 55 EMA (now at 77.38) and above. But 78.87 remains a key resistance level to hold in near term and we'd still expect another fall as long as this resistance holds. Below 76.74 will target 61.8% projection of 81.31 to 76.88 from 78.87 at 76.13.