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23-27 December Forex weekly review

Sergiy Zlyvko
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Foreign exchange market was in a state of hibernation in the first four days of the week as the major currency pairs traded in very narrow ranges.However, on Friday December 27 dollar came under massive pressure against its major European competitors.

The Fed’s decision to begin reducing the quantitative easing program contributed to the strengthening of the U.S. currency a week earlier. Nevertheless, the U.S. regulator is likely to carry out the purchase of securities in the amount of 300-400 billion dollars in 2014, while the program will roll completely and will maintain interest rates at below 0.25% by 2015. Accordingly, monetary policy will remain soft and it began to beat on the positions of the American dollar.

Euro, British pound and Swiss franc synchronously significantly intensified against the dollar, starting from 00.00 GMT on December 27. Moreover, the single European currency, updated yearly highs at near 1.39. Significant macroeconomic statistics, that may have an effect on market sentiment, this day has not been published. Later in the afternoon on Friday, December 27 the world’s leading media began to disseminate information that representatives of the ECB (Jens Weidmann) expressed concern about loosing monetary policy of the European regulator. However, this position of the Bundesbank head has long been known and market’s reaction seems overly emotional.

Non-European competitors of the dollar did not feel confident.

Japanese yen, Australian and New Zealand dollars were unable to form a steady upward trend. The strengthening of Japanese currency constrained implemented in the spring of 2013 the Bank of Japan’s monetary policy, under which the regulator intends to double the monetary base within two years. Aussie remains under pressure as long as the head of the Reserve Bank of Australia Glenn Stevens called strengthening of the local currency as the main cause of the economic difficulties in the country and did not rule out the possibility of intervention.

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