Good News from Forexfx community:
The US Dollar continued to rise last week (with an slight – and expected – bump in the road ahead of the FOMC announcement) having begun a broad-based rebound in November after the Federal Reserve made the official its $600 billion expansion quantitative easing (known as “QE2”). The increase in asset purchases matched what investors priced in over the preceding months – a process that produced sharp rallies in stocks, Treasury bonds and gold while weighing heavily on the greenback against the spectrum its top counterparts – opening the door for profit-takingand throwing pre-QE2 trends into reverse.
The US Dollar continued to rise last week (with an slight – and expected – bump in the road ahead of the FOMC announcement) having begun a broad-based rebound in November after the Federal Reserve made the official its $600 billion expansion quantitative easing (known as “QE2”). The increase in asset purchases matched what investors priced in over the preceding months – a process that produced sharp rallies in stocks, Treasury bonds and gold while weighing heavily on the greenback against the spectrum its top counterparts – opening the door for profit-takingand throwing pre-QE2 trends into reverse.
Looking ahead – with the Fed opting to make no changes to the major elements of Policy last week –there seem to be no significant barriers preventing this dynamic from carrying forward into the final two weeks of the year. Broad-based Risk aversion also remains as a supportive factor, with the markets still worried about Euro Zone sovereign risk (see below) and a potential reprisal from North Korea after the South held a live-fire drill in disputed waters.
third-quarter Gross Domestic Product reading highlights the calendar, with expectations calling for the annualized growth rate to be revised Higher to 2.8 percent.
EURUSD: Sellers in Charge as Debt Fears Stay in Focus
The unwinding of QE2-linked gains in global share prices will be compounded by lingering Euro Zone sovereign debt fears to weigh on the Euro after last week’s attempt to forge a permanent solutionfailed to excite investors. Indeed, while EU leaders agreed on a permanent bailout fund and an increase in the ECB’s capital base, the scheme’s ability to head off imminent threats in relatively large member states like Spain – threats beyond the scope of the existing EFSF – is limited considering the road to its final implementation is likely to prove long and fraught with intra-EU bickering. On the economic data front, December’s Euro Zone Consumer Confidence reading amounts to the only bit of significant event risk.
Source: Bloomberg
GBPUSD: Risk Trends, BoE Minutes Compete for Attention
While the link with overall risk sentiment remains the most potent driver of price action, Monetary Policy will enter the mix and attempt to claim some influence over the British Pound as the Bank of Englandreleases the minutes from December’s monetary Policy Meeting. As before, the focus will be on the evolving debate about striking a tricky balance between stubbornly high inflation and the onset of the government’s austerity program. On balance, the possibility of a non-event seem high, with the central bank opting to hold off on further stimulus until fiscal retrenchment is visibly undermining economic recovery. The final revision of the third-quarter Gross Domestic Product figure is also of note.
Source: Bloomberg
USDJPY: Yen Remains Under Pressure as US Yields Recover
The Yen continues to track 2-year US Treasury yields, hinting continued weakness against the US Dollar is ahead as the unwinding of QE2-linked bets continues to play out in the bond markets. Indeed, the return on US debtwithered rapidly in the run-up to the Fed’s November Policy Announcement, setting a low on the day of the QE2 announcement before reversing higher. To date, yields have recovered less than half of the drop from the swing high set earlier this year, hinting at still more room for a deeper correction. The monetary policy announcement from the Bank of Japan headlines the weekly set of scheduled event risk, with traders on the lookout for an announcement of additional stimulus as deflation shows no signs of abating while recent economic data points to fading export demand as the impact of the global fiscal spending spree seen amid the 2008 crisis begin to noticeably evaporate.
Source: Bloomberg
CAD, AUD, NZD:Losses to Continue on QE2 Profit-Taking
Broad sentiment trends remain firmly in control of the commodity bloc, pointing to continued selling pressure after last week’s losses as the post-QE2 correction continues to weigh on global equities and the spectrum of correlated currencies. Canadian economic data dominates the calendar, with Consumer Price Index, Retail Sales and Gross Domestic Product figures all set to cross the wires. New Zealand’s GDP report as well as the release of minutes from December’s Reserve Bank of Australiamonetary policy meeting are also on tap.
Source: Bloomberg
Source: Bloomberg
