Spotlight is on the Fed reserve meeting | 20 December 2013

Review of the past week

The past week on the Forex market was not very notable in terms of macroeconomic statistics. According to the week's results, united European currency managed to consolidate its positions a little, despite weak European stats. Industrial output decreased by 1.1% over the month, which is the lowest value from October, 2012 and indicates problems of the European manufacturing. On Thursday, 12th, in the US report on retails was published. The volume of retail grew by 0.7% which says about good paces of growth, because consumer expenses play a very important role in the US GDP. Though USD consolidation against its main competitor was moderate and trading week was closed by it on the point of 1.3741.

In the beginning of the past week, GBP/USD quotations have been moderately growing. On Monday 9, BoE Governor Mark Carney stated that British economy allows optimistic estimations and now it is difficult to find the reason of deteriorating of a potential upsurge in the economy. Such positive comments encouraged British currency to set a fresh year high at the point of 1.6464. However the fuel for growth expired at this point and bears entered the game. British economy provided a mixed news background: manufacture grew for 0.4%, whereas visible trade balance sheet was rather worse than the medium line of forecasts. Strong retails stats from the USA poured oil on the fire as well as the positive dynamics of Eur/Gbp.

Trading week was closed by Gbp/Usd pair below 63 figure, at the point of 1.6295. Japan provided negative macroeconomic stats. Total GDP estimation for the 3rd quarter showed reduce by 0.5%. Also it is necessary to underline weak data on business index for big manufacturers BSI, which demonstrated drop in 5.5 points against the previous quarter. In case of further deterioration, one can expect additional softening of monetary policy by Japan that will instigate one more wave of Usd/Jpy growth. Further to publication of a strong report on the US retail, USD/JPY quotes went up and established a fresh year high at the point of 103.91. After that, bulls decided to fix profit and trading week was closed by the pair at the point of 103.24.

Forecast for the week December 16 – 20: 

Euro/dollar:

A lot of events will take place on this trading week. In fact, it is the last trading week because of coming Christmas. FRS meeting will be the core event and is scheduled for December 17 – 18. Economists do not expect changes in monetary policy. On the one hand, FRS is given a free hand in this deal and it can cut QE3: unemployment level reached target level as of 7%, a good growth pace of GDP is witnessed. On the other hand, Ben Bernanke and his colleagues did not expect that unemployment will go down so fast and all hints for cutting stimulative policy were purposed exactly for 2014 year. Therefore, the reason to justify the cancel of QE3 cut must be referred to and it was inflation, which demonstrated drop in 1% per annum in the last October release. One can predict that at FOMC press-conference it will be stated that despite good outlook of the labor market and the economy in general, current data is not enough to make decision and the committee will get back to the issue of QE3 cut on its meeting in Jan 2014.

ZEW and IFO indices of business climate must be considered, when it comes to Europe. We can forecast that these figures will correspond to expectations and will assert a moderate influence on Eur/Usd quotations. In general, European currency can show a moderately descending trend, within the range 1.3550-1.3800.

Pound/ dollar:

Great Britain will provide abundant macroeconomic stats. Consumer Price Index, employment and retail volume figures should be considered particularly. Inflation report can be above expectations of market participants, whereas the data on labor market and retail can be on medium the level of forecasts. On Wednesday, 18th of December, records of the last BoE meeting will be published. Positive statements on a confident recovery of the U.K. economic growth can also support demand in Gbp/Usd pair. US Consumer Price Index will encourage bears. One can expect release to be just little above the medium level of forecasts that will support US currency. Fed reserve meeting can be a pressing factor for British currency. In general, Pound can be within the range 1.6150-1.6400 – that is to say, in a flat trend.

Dollar/Yen:

The Tankan index for sentiment among large manufacturers for the 4rt quarter will be published in Japan. The data can be on the medium level of forecast. On the last trading day, meeting of the bank of Japan is scheduled and if the decision on stimulative measures will be announces, growth of Usd/Jpy pair can take place. Positive data on the US inflation will also play into the hands of bulls. In general, a moderately ascending trend can be expected for Usd/Jpy pair, the range is 102.00-104.50.