Daily Market Review - 06/20/2014

EUR/USD

Overall trend looks bearish. Most likely the Euro has encountered some resistance at 1.3640. If retracement is not too deep, then the prior trend is anticipated to recur quite soon.

USD/JPY

The pair is pretty ranged and its fluctuations are rather strong. General outlook for the pair is bullish, though right now the pair rebounds from the previous dip. The resumption of downward pressure is expected soon.

GBP/USD

So the Pound is above 1.7000. Some consolidation in recent days has finally come to an end. Nothing seems to stop the Pound from continuation of its ascent now. The forecast is without a doubt bullish.

Market Overview

Yellen continues to aspire to gradually exit the QE3: recently it has been announced that the Fed reduces purchases of treasury bonds and mortgages for another $ 10 billion, bringing the overall volume of the program down to just $35 billion.

That decision was more than expected, and the market was looking forward to hearing Yellen’s comments on perspectives of rates increase.

Besides the FRS has published another forecast on the growth of the US economy in the current year: the assessment has been revised from 2.9% to 2.2%. It could seem the news was negative, but after significant fall in the first quarter, when the GDP lost 1%, the economy might add around 3.4%. If things go that way, then by the end of the year the FRS will have a serious reason for rate increase.

Also the FRS left the forecasts on inflation until 2016 intact, and all of them are still lower than goal levels. That has surprised the market; if one takes to account optimistic data on Consumer Price Index (May growth by 0.4%, a month earlier: 0.3% growth, what is almost twice as much as forecasted). Apparently Yellen considers this piece of data a short term “noise” only.

With interest rates things are even more bewildered. Earlier the FRS had stated that by the end of 2015 the rate would possibly comprise 1%. Now the assessment of the regulator has changed up to 1.25%. Positive reaction of the Euro bulls reflects the difference between expectations of the markets and the message sent to them by the FRS.

Apparently this is the result of the fact that the FRS has been convincing everyone of the long period of low rates for some time.

Overall the situation is paradoxical. Recently the 5th reduction of the QE3 has occurred; the FRS gently hints at rates’ increase next year, and the US Dollar continues to trade on previous levels. More over: that downfall on the EURUSD, which was witnessed a few weeks ago, is triggered by the news from the ECB, and not by expectations of soon approaching end of stimulating measures of the FRS.

Economic Calendar

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