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The Federal Reserve Begins Its Two Day Meeting Today

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The Federal Reserve Begins Its Two Day Meeting Today

The Federal Reserve begins its two day meeting today and investors will be focused on whether the central bank will continue to taper its bond purchase program. The economic momentum that was palpable toward the end of 2013 seems to have vanished and recent economic data points show that the US economy is stagnating.

Tuesday’s economic news from Europe was the first look at the UK’s fourth quarter GDP. It was in line expectations with a 0.7% quarterly rise for a 2.8% year-over-year expansion. That expansion still leaves the UK economy a little below its pre-financial-crisis peak. A new high is likely here in early 2014. As far the sectorial breakdown, it is largely as expected as well. The industrial sector expanded by 0.7% and the largest services sector grew 0.8%. Construction was a 0.3% drag.

The yield differential between the US and UK failed to respond to the better than expected data, but the release
in the US of a worse than expected Durable Goods orders pushed US yields lower and eroded the value of the dollar. The 10-year yield differential between the US and the UK remains stuck near par, which is keeping the Cable locked in a tight range.

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The GBPUSD moved higher and was able to hold support near the 10-day moving average near 1.6490. A close above the recent highs near 1.6670, would lead to a test of the weekly highs near 1.6850. Momentum is positive as the MACD (moving average convergence divergence) index generated a buy signal last week. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The RSI moved higher with price action reflecting accelerating momentum, while printing near 60, which is on the upper end of the neutral range.

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