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Fed decides to pull the trigger and tapers asset purchases for $10B, how will this influence major currency pairs
MORNING BRIEF
Fed’s decision to start tapering its asset purchases program was the event of the month and it seems that we’re heading into 2014 with new data on the table. The Federal Reserve went ahead and reduced the stimulus to the domestic economy by $10B and announced that further reduction will be entirely “data dependant” although Bernanke said that he sees further tapering to occur at each meeting. This means that Dollar will have its chance to shine as the American currency is expected to strengthen following this development. What is also important is the fact that Bernanke’s successor Janet Yellen was also on board with this decision meaning that she also sees that the improvements in the US economy called for a reduction in the added stimulus. After the first moments of volatile behavior the major currency pairs didn’t react with extreme swings meaning that market participants had already priced in this development and indeed it was the rational choice for the Fed to make. The Euro fell towards 1.3650 after momentarily testing its yearly highs but the Pound ended the day higher against the Dollar after having been lifted earlier in the morning by the better than expected job data. It seems that although the US economy is progressing in a satisfactory pace the UK finances are going even better and this is reflected on the currency’s outlook. It will be very interesting to see how the Cable will react in the coming period with the demand for Dollars and Pounds alike intensifying. From our standpoint, we expect the Euro to devaluate against the rising Dollar, bringing the currency rate closer to a more realistic level if you consider the region’s economics and we feel that a battle between a rising Dollar and an already strong Pound will attract investors attention.
British Retail Sales and US Jobless Claims on the docket as markets digest the FOMC tapering decision
The Economic Calendar for the day ahead holds a couple of important events that are worth focusing on. Early in the morning the UK Retail Sales will be released and an uptick is expected. Indeed the improvements in the labor market in the UK call for more spending and if the data prints as expected the Pound will get a further lift against the Dollar. However, later in the day the US Initial Jobless Claims are also expected and given the drop in the unemployment rate we expect the number to drop further enhancing Dollar’s outlook.
Economic Calendar
|
Time |
Currency |
Event |
Importance |
Forecast |
Previous |
|
9.30 |
GBP |
Retail Sales (YoY) |
Medium |
2.4% |
2.3% |
|
13.30 |
USD |
Initial Jobless Claims |
Medium |
332K |
368K |
|
15.00 |
USD |
Existing Home Sales |
Medium |
-2.0% |
-3.2% |
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TECHNICAL ANALYSIS & LEVELS
EUR/USD
The Euro did finally drop against the Dollar after the time of the FOMC decision but unluckily the first ticks after the release took away our stops and left us with the joy of being right on the call but stopped out. No matter, we’re now looking to join the downwards rally and we’ll need to see how the Euro reacts today. We treat any retracements as a chance to enter short and for the day ahead we want to just wait and see how far this retracement will go in order to plot our next trade. The 1.3700 and 1.3730 levels seem very important and we’d like the current pullback to end around that levels.
GBP/USD
The Pound reversed its downtrend completely and actually gained against the Dollar yesterday even though the FOMC decision lifted the US currency. The better than expected job data sent the UK currency above the 1.6350 mark we discussed yesterday and the Fed’s tapering initiative did little to stop the Pound’s rise that remained almost unchanged after the release, trading around the 1.6400 mark. We’d like to enter the trend upwards and we’ll wait for a pattern to emerge to allow us to do just that.
FTSE 100
Yet another example of how important events are dangerous and should not be played out as a gamble was the FTSE 100. The UK index reacted as expected and did rise to hit our second target but again the initial reaction to the FOMC decision has stopped us out at the breakeven price. We expect trading conditions to normalize now and allow us to pick up pace on our trading suggestions as the last couple of weeks were full of wild swings moves in the markets as investors were preparing for the FOMC decision. Any pullback from the FTSE will be treated as an opportunity to enter long and we’d like to see how the instrument will react as it is near the important 6,575 points resistance.
Gold
Gold fell as expected after the FOMC decision and is now hovering around the $1,225 mark. Dollar demand is expected to pressure the yellow metal’s price even lower and the important $1,211-2 support level might be threatened but for the time being Gold seems to try to pull back a bit higher. We need to stand aside for the day and let the dust settle prior to making any new suggestions. Our medium term outlook for Gold seems negative as the Dollar rises and we’re looking forward to shorting the yellow metal as it is heading for its yearly lows.
The above charts have been created using FXCM’s Trading Station platform.
STOCK MARKET FOCUS
[Restricted Content] Plc.
The Alpesh Patel Momentum/Value filter has indicated [Restricted Content] Plc as our stock of the day.
Company Information: [Restricted Content]
Created using Sharescope Pro
[Restricted Content] Plc has been rated an 8 out 10 in our Value/Growth rating and gets an B Grade rating on our Bullish Momentum meter. The P/E ratio is relatively low suggesting that the stock might be underpriced, the ratio of the price earnings is also low and Turnover is up year on year supporting the growth potential. From a technical standpoint, the MACD indicator seems to have stalled a bit on our weekly chart above so we’d like for price to break above recent highs prior to buying the stock. The suggested holding period for a stock of this type is 2-3 months.
Important Information
The filters and settings in the Special Edition of the Sharescope software use Alpesh Patel’s proprietary criteria to generate suggestions of securities worthy of further investigation. They DO NOT CONSTITUTE INVESTMENT ADVICE.
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