Forex Flash: FX markets to remain in a sideways mode unless clear message from Bernanke - Wells Fargo

FXstreet.com (Córdoba) - It's been a choppy start to the week for FX markets, according to the Wells Fargo team. The euro started off on a soft note, initially reversing nearly all of the Friday's bounce as there is still plenty of risk and uncertainty on the European calendar "including this week's Bundestag vote on the Spanish bailout and the German Constitutional court ruling on the European Stability Mechanism - the latter is not expected until mid-September", they say.

"However, soft US retail sales data has moved Fed easing hopes to the forefront. With US Treasury yields lower, the Japanese yen is the biggest beneficiary, extending earlier gains", they add. "Other foreign currencies have also received a boost against the greenback, with the euro, pound and Australian dollar reversing their earlier losses".

Given that the data calendar is relatively quiet globally, Wells Fargo suspects markets will focus more on the US developments this week. "In particular, Fed Chairman Bernanke's Congressional testimony will be watched closely for 'validation' of the view that the Fed is moving closer to further easing", Wells Fargo says. "However, without a particularly 'loud and clear' message from Chairman Bernanke, there is risk of ongoing instability in market sentiment, with FX markets in a back-and-forth rather than directional trading mode in the days ahead".