Analytic reviews

The dollar is likely to continue to grow next year

Rallyof the US dollar against major currencies ended after the Fed’s decision to begin to reduce the volume of asset repurchase in January at $ 10 billion to $ 75 billion. On the eve of Christmas holidays and New Year celebrations market activity declined significantly.

Dollar’s weakening is most likely due tothe closing of positions aimed at buying the U.S. dollar before the holidays, when the activity in the markets is reduced. Но в следующем году укрепление доллара, похоже, продолжится.

With regard tothe dynamics of today's foreign exchange market, it can be assumed that the activity will be quite low. Short-term surge of the dollar against other major currencies is possible, if today’s statistics from the United States will be no worse than the forecast.

Today we shouldpay attention to the details of Canada's GDP and the index of consumer confidence University of Michigan.

Semyon Kamenski​

Expected surprise

Yesterday at the last meeting of the Fed on monetary policy this year, it was decided to start reducing purchases of government bonds and mortgage-backed securities already in January of the next year in the amount of $10 billion.

So,in January, the Fed will buy assets in the amount of $ 75 billion of which will be bought 35 billion dollars worth of bonds backed by mortgages and 40 billion worth of government bonds.

The Fed is trying to solve two problems at the same time. First, understand that the economy is recovering and must already begin to reduce the stimulus, the second is to leave a "carrot" for the markets in the form of promises that rates will remain at a low level for quite some time.

The market has already swallowed a “carrot”, demonstrating growth in major stock indexes. But the bond market with its yields dynamics on government bonds have not yet showed the signs of optimism.

Yesterday during Bernanke yield on the benchmark - the 10-year Treasury Note jumped to 2.88%, which is certainly supported the dollar. Futures on the ICE Dollar Index to a basket of major currencies jumped to the level of 80.80 points.

Based on the above we can assume that the EURUSD will continue to decline to the level of 1.3600-15, which corresponds to 38% Fibonacci if it can overcome the level of 1.3650.

Todayall the attention is on the Fed's decision on monetary policy

Foreign exchange marketstabilized in anticipation of the outcome of the Federal Open Market Committee of the US Federal Reserve. Opinions of the market participants about what the results of the meeting will be are divided. Still, a majority of experts believes that no changes in the policy willfollow and that they are likely to occur by the spring of next year.
 

Another group of expertson the contrary think that the decision about stimulus reduction will be made at this meeting already. But whatever Bernanke says at his press conference, the main thing in his words will be clarification on the timing of the beginning of stimulus reduction and its volumes.
 

If it will be so,you can expect a sharp local strengthening of the dollar, since any certainty about the timing of the program will negatively affect too overheated U.S. stock market which is likely to begin the long-awaited correction.

Today,in anticipation of the Fed's decision on monetary policy there will be released a block of important statistics on the construction sector. Positive data would also support the dollar.

Based on theinformation above we can assume that the short-term trend on EURUSD is over, since the relationship between the euro and the dollar is no longer in favor of the single currency. We can assume that the pair will fall to the level of 1.3687, which corresponds to 23% Fibonacci correction level.

Semyon Kamenski​

Guesswork continues

Market participantscontinue to analyze the probability that Fed’s Chairman Bernanke announces tomorrow the beginning of stimulus reduction program of the national economy, which has lasted more than one year and is the third in a series of such measures that the Fed applied since the beginning of the global economic crisis.

Goodstatistical data is in favor of this possibility. Data shows a steady recovery of the U.S. economy - reducing the unemployment rate to 7% and a number of other indicators which at the time Bernanke referred to as a condition to continue stimulating the economy because of its weakness, have become noticeably better and shows a positive trend.
 

In addition, the agreements reached between the main parliamentary parties in Congress for the adoption of the Federal budget, have ceased to hold down Bernanke’s  hands and can really contribute to the decision on stimulus reduction.

WhatBernanke reports we’ll find out tomorrow. Following the two scenarios we can assume that if it is decided to start reducing the volume of repurchasing of government bonds, it will be a good local support for the U.S. dollar and all along the front of the currency market.
At the sametime, if such a decision will not be accepted and the reasoning will be that the economy has not yet matured enough and incentives are still needed, theninvestors’ inclination to increase purchasing risky assets will grow significantly and the dollar will be under tremendous pressure.

Semyon Kamensky​

Bernanke may quit the job before the appointed time

Already on Wednesday, Bernanke may announce stimulus reduction. This may be due not only to the improved U.S. economy, but perhaps to the Bernanke’s announcement on Wednesday about his early resignation in December of this year, instead of January 2014. Anyway, this week there will be a vote on the candidate J. Yellen as the head of the U.S. central bank, and if she passes the vote she could become the head of the Fed before the appointed time.

If we pay attention to the history of change of the Fed’s leaders, than we can notice that the head of the Fed usually takes important decisions on monetary policy before he/she leaves, and hence already on December 18^th Bernanke may declare the end of the bond purchasing program.
 

If it really happens so, then the tendency of investors for the risky game will noticeably fall. Stock market, commodity and raw material assets will be under pressure, and the U.S. dollar on the contrary will receive local support.

Assessing the overall picture of the markets, we can assume that all the activity will be significantly reduced until the Fed's decision on the monetary policy.

Semyon Kamenski​

Preliminary Purchasing Managers Index (PMI) in Germany surpassed forecasts, but the euro / U.S. dollar was unable to regain the ground lost after the very weak French data. After the release of the German PMI, the euro / dollar rose from 1.3745 to 1.3755 area and is now trading at 1.3749 against 1.3760 level at which it was before the release of PMI France.​

Trading recommendation: buy a pair when it breaks through and firmly establishes above the strong intermediate resistance level of 1.3800 with small volumes, while increasing positions in case of consolidation of the pair above $ 1.3855 with the first target 1.3900 and 1.4000 more distant goal.

Analyst Andrew Batenski

USD has all chances to receive support
 

Expectationsrelated to the fact that in December the Fed will not start stimulus reduction slightly declined. In our opinion, the assurances of some experts that the statistics from the United States, which came out last week are insufficient for the decision on reduction of government bond purchases program. They are unfounded and serve just an excuse to justify the desire of many big players to push the market up to sell previously purchased assets with more profit.

All dynamics for the last three monthsof economic statistics indicates a clear improvement in the U.S. economy and therefore, despite statements by Bernanke that it is too early to begin to reduce the stimulus, the Fed might announce the desire to start reducing QE 3 program and even determine the timing of the event.atthenextmeeting that istobeheldon17-18 of December.
 

Despite the factthat the Fed did not explicitly seek to scare the markets and get out the same way to maintain the attractiveness of equity assets of U.S. companies, while not allowing government bond yield to grow, there will be a lossanyway. Another question is what they will be.
 

At this wave the dollarshould be supported as well as agreements on the U.S. budget, which were reached recently. In the current situation it should also be considered that the United States will be the first who come out of the soft monetary policy, and therefore the era of the weak dollar that lasted for 13 years is coming to an end.​

USD / JPY was trading steadily at the session on Tuesday as investors continue to speculate about the possible time when stimulus reduction program of bond purchases will be started by the Federal Reserve. New food for these arguments gave an employment data in the U.S. ( job growth in the U.S. in November to 203,000 jobs ), which exceeded expectations. Trades are cautious after a series of speeches form the heads of the Federal Reserve Bank. They pointed out that the Fed may begin to start reducing the stimulus program later this month. As of now, 85 billion U.S. dollars is spent according to this program. Regular meeting of the Operations Committee on the Fed’s Open Market is scheduled for December 17-18 , but many investors still expect that the changes in the bond-buying program will be announced in the first half of 2014.

Analyst Andrew Batenski​

After a fairlyslow session in the United States where Fed’s representatives Bullard, Lacker and Fisher have expressed a tendency to begin stimulus reduction earlier, it was a bit surprising to see the weakening of the U.S. dollar during the Asian session on Tuesday. USD / JPY was under slight pressure after the fall of the index Nikkei, which closed the session lower by 0.3%.
 

Trading recommendation: buy a currency pair after it breaks through and  firmly establishes higher than a strong intermediate resistance level of 103.45 with small lots. Add positions in case of strengthening of the pair higher than a103.75 mark with a first aim of 104.00 and further aim of 105.00.

Analyst Andrew Batenski
 

Strong report on employment in US that was published on Friday, again put a Japanese Yen under pressure. Seasonal and fundamental factors are directed against Japanese currency, and that’s why we expect its further weakening. As of now currency pair USD/JPY is traded at 103.05 near the last week’s maximum of 103.37.

Trading recommendation: buy the pair with small lots when it breaks through and firmly establishes above the strong intermediate level of support at 103.37. Build up positions in case of firm consolidation of the pair above the level of 103.75 with the first aim of 104.00 and the further 105.00.

Analyst Andrew Batenski​