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18 December Forex daily review

Sergiy Zlyvko
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Fed gave New Year’s surprise to financial markets. Now we do not have to guess when QE3 reducing will be started. In honor of Bernanke care as head of the U.S. Federal Reserve at the last meeting it was decided to reduce monthly volume of government bond purchases by $10 billion to $75 billion from January 2014. Bernanke said himself that the Fed adopted a decision to reduce QE3 is not related to his upcoming retirement.

Program reduction of $10 billion implies a decrease of government bonds redemption from $45 billion to $40 billion and a reduction in redemption of securities backed by mortgages from $40 billion to $35 billion. Although they promised that will not touch the assets provided by a mortgage for a long time. Rates were left unchanged.

Yesterday’s decision by the Fed is a reflection of the improving economic situation in the U.S. Fed improved economic forecasts for 2014 on unemployment and economic growth. It is expected that in 2014 U.S. unemployment rate will decline from 7% to 6.3% and the rate of U.S. GDP growth will accelerate to 2.8% – 3.2%.

Foreign exchange market reacted by buying of the dollar throughout the market. U.S. stock indexes rose sharply. DJIA index grew by 1.78%. For the stock market, QE3 minimizing is negative factor, but the meeting has passed so it is time for a Christmas rally.

Sterling yesterday markedly strengthened in tandem with the U.S. dollar and the euro after the publication of strong reports on the labor market and retail sales. The growth on the news was 1.5 figures. By the close of trading in New York, the pound fell back by 95 basis points to 1.6380. The EURUSD reached a maximum at 1.3810 and declined to 1.3650 (-160 points). Also the dollar strengthened against the yen, Australian dollar and the Swiss franc.

Today a lot of news comes so in the morning we would like to see correctional movement against the dollar yesterday’s growth on the major pairs.

Euro sellers now need to consolidate below 1.3625. Then the pair can safely drop to 1.3535. Break of 1.3535 will open the way to 1.3100. This alignment is not obtained now. Today we are waiting for the correction to 1.3705 and then another decline.

From a maximum at 1.6480 the pound retreated almost one piece and we think that on the general background of the dollar, the pound still fall against the dollar with other currencies. We are waiting for the fall to 1.6320. If EURGBP cross will be adjusted against the background of the dollar, then the goal is on 1.6280.

From the top of the channel, AUDUSD rate fell to 0.8820. 3 more figures and the pair will touch the target of the RBA. After a brief decline, we consider the correction to 0.88.

Swiss franc weakened against the dollar to 0.8960. The dollar rose across the market after the Fed’s decision to reduce the amount of QE3 by 10 billion dollars.

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