Collinson FX market Commentary: December 20, 2013 Click here to find out how to get CollinsonFX's free iPhone app
A stunning rise in equities was the upshot of the FOMC meeting yesterday. The Fed announced tapering of $10 Billion, down to $75 Billion injected per month. Ordinarily this would have pushed interest rates higher and equities lower, but the combination of guarantees, of extended low interest rates (well beyond the time Unemployment drops below 6.5%) and the reason for the cuts!
The recovering US economy has forced Bernanke's hand, with regards QE Infinity, but assurances regarding interest rates saw Bond Yields fall and equities spike. Many were caught short and paid the price. The EUR turned, with a reduced increase in the printing of US Dollars, falling to 1.3660.
The recent rises in the GBP were reversed slipping back to 1.6350. Weekly Jobless Claims rose and Existing Home Sales contracted 4.3%, contradicting recent economic data releases.
Commodity currencies reacted, as expected, with the AUD crashing to the low 0.8800's although the KIWI showed some initial resilience. Local data supported the currency with GDP rising to 3.5% and the Trade Surplus also logging gains. Despite the strong economic data, the KIWI was finally overwhelmed, with global markets forcing the NZD back below 0.8200. The continued reduction in QE should support a rising USD over a period of time. Collinson FX market Commentary: December 19, 2013
Markets eagerly await the FOMC meeting with many tipping the commencement of tapering....As a result the Fed has tapered their purchases by 10 bio per month effect immediately. Bernanke is set to leave as Chairman to be replaced by Janet Yellen at the end of January. The likelihood of the leopard changing its spots is low and Yellen is more of a dove than he. The triggers to remove QE have been set and neither has been achieved but economic data is moving in the right direction.
The targets were Unemployment below 6.5% (currently 7%) and Inflation over 2.5% (currently under 2%). Housing Starts surged 22.7% in the USA, smashing expectations and fulfilling the improvement trends, although Building Permits and Mortgage Applications fell. Tapering will bring a resurgent Dollar and thus force pressure on global currencies.
The EUR holds relatively high levels at 1.3750 and the GBP 1.6400 but remain vulnerable to tapering. Commodity currencies also relect the pressures from the reserve currency with the AUD slipping below 0.8900 and the KIWI 0.8225. NZ Business Confidence continues to build reflecting the slow recovery in the domestic economy and local markets await GDP data releases today! Collinson FX market Commentary: December 18, 2013
The two day meeting of the Federal Reserve began overnight with the results announced tonight. Expectations are high that the tapering process may be about to commence and monetary expansionism is about to be curtailed.
The economy appears to be on the mend, offering little in the way of excuses, from the Fed. Bernanke is on his way out and his replacement is expected to be more of a dove. The pressure is on but the resilience and commitment of the Central bank will probably result in inaction. The currencies hover with the EUR 1.3750 and the GBP 1.6275. The Fed controls the markets and little movement presumes a failure to act. All will be revealed tonight and despite growing confidence tapering will have an impact. Commodities remained well bid with the KIWI holding 0.8240.
The AUD is under extreme pressure from the RBA, who declined to cut rates, but relied upon debasement as a strategy to advantage any growth in the reserve currency. The AUD continued recent declines testing 0.8900 overnight. All depends on the FOMC results overnight!? Collinson FX market Commentary: December 17, 2013
Equity markets rebounded strongly, after two consecutive weeks of losses, ahead of the two day FOMC meeting. The series of positive economic data releases lately have confirmed the recovery in the US and threatened the QE Infinity program. The Fed are suspected of beginning the tapering process and this has triggered the last couple of weeks of downside on equity markets, globally.
The Dollar, has regained long forgotten lustre, pushing commodities lower and the associated currencies. The AUD, has come under spectacular pressure, crashing to 0.8950 cheered on by the RBA. 'Jawboning' (and perhaps monetary intervention??) by the Central banks have assisted in the sentiment sparked by the recovery in the USD. The RBA Minutes will be released giving insight into the logic and language of the Bankers. The recent gains by the GBP have been reversed, slipping to 1.6300, with the EUR hitting the 1.3750 wall.
NZ Consumer Confidence continues to gain ground and has been reflected in the relative strength of the currency in the down markets. The KIWI holds 0.8230 and has broken above 0.9200 against the AUD. The once all-important Tankan report was released with some strong gains in the Japanese economy, although the Chinese Flash Manufacturing PMI declined, neutering any substantial momentum from Asia.
All eyes remain on the Fed and the growing belief the tapering may begin with many arguing the growing strength of the economy will counter the effect on markets.
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