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The Federal Reserve Decision on Monetary Policy: Biggest News of the Year

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The Federal Reserve Decision on Monetary Policy: Biggest News of the Year

The Federal Reserve decision on monetary policy was the biggest news of the week and arguably the biggest news of the year. Although most investors expected no change to policy and just an adjustment to guidance with regard to bond purchase tapering, the news was still interesting. Japanese news released during the Asian session barely altered the currency markets. The Fed decided to draw back on bond purchases, but their comments were dovish and they stated that rates would remain low well after the unemployment rate moved below 6.5%.

Japan reported a 1.293 trillion yen trade deficit for November, following the slightly revised 1.093 trillion deficits in October. Japan has been running a persistent trade deficit for nearly a year and a half. Faced with an 18.2% year over year depreciation of its currency, many economists would have expected a stronger trade performance.

In addition, Japan’s experience is also a reminder that the import side of the equation should also be considered. Japan’s exports were up 18.4% year over year in November, while imports rose 21.1%. Exports to China were up 33.3% from a year ago and at 1.1426 trillion exceeded Japanese exports to the US which were up 21.2%.

In Europe, the business climate measure of the German IFO was in line with consensus expectation of a small increase to 109.5 from 109.3 in November. This comes on the heels of a better than expected Zew Survey which was released on Tuesday.

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The USDJPY hovered near the 10-day moving average near 102.80, until after the Fed meeting when is soared above resistance. Momentum is flat but turning higher as the MACD (moving average convergence divergence index) is printing near the zero index level. The RSI (relative strength index) which is an oscillator that measures overbought and oversold levels is printing near 66, which is the upper end of the neutral range.

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