Dollar gains on robust U.S. growth data

The greenback firmed against most major currencies on Thursday after the U.S. reported its economy grew at a healthy pace in the fourth quarter of last year.

In U.S. trading on Thursday,EUR/USD was down 0.85% at 1.3547.

The dollar rallied after the Commerce Department said gross domestic product expanded 3.2% in the three months to December, in line with most forecasts, even outpacing some, following a 4.1% rise in the third quarter.

Consumer spending rose by 3.3%, the strongest since the fourth quarter of 2010, which markets applauded especially, while exports grew by 11.4%.

The data strengthened the dollar by cementing market expectations for the Federal Reserve to continue trimming its monthly bond-buying program, which weakens the greenback pushing down long-term interest rates.

On Wednesday, the Fed said it was cutting the program to USD65 billion from USD75 billion. The program launched in late 2012 at USD85 billion in monthly purchases of Treasury and mortgage debt.

Elsewhere on Thursday, the Labor Department said the number of individuals filing for unemployment assistance in the U.S. last week rose by 19,000 to 348,000 from the previous week’s revised total of 329,000.

Analysts were expecting the figure to remain relatively unchanged at 330,000, though investors shrugged off the data.

Separately, the National Association of Realtors said its pending home sales index dropped by a seasonally adjusted 8.7% last month, disappointing expectations for a 0.3% gain, which also failed to dampen spirits.

Rough winter weather has taken its toll on recent economic indicators, though general market attitudes persist that U.S. recovery remains on track.

Rising stock prices in the U.S., Europe and elsewhere also bolstered the dollar as fears emerging-market contagion may spread cooled somewhat.

Meanwhile in Europe, Germany's consumer price index slowed to 1.3% in January from 1.4% in December, missing expectations for an uptick to 1.5%.

German inflation fell 0.6% in January from a month earlier. Market expectations were for a decline of 0.4%.

Also on Thursday, data showed that the number of unemployed people in Germany fell by 28,000 in December, outstripping expectations for a decline of 5,000. The German unemployment rate was unchanged at 6.8%.

A separate report showed that Spain’s recovery picked up in the fourth quarter, with gross domestic product expanding by 0.3%, up from 0.1% in the three months to September.

The dollar was up against the yen, with USD/JPY up 0.48% at 102.76, and up against the Swiss franc, with USD/CHF up 1.02% at 0.9036.

The greenback was up against the pound, with GBP/USD down 0.54% at 1.6475.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.04% at 1.1173, AUD/USD up 0.52% at 0.8786 and NZD/USD down 0.77% at 0.8151.

The Reserve Bank of New Zealand left the cash rate unchanged at a record low of 2.5%, but said the country’s "economic expansion has considerable momentum" and added that a return of interest rates to more normal levels can be expected "soon."

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.73% at 81.21.

On Friday, the U.S. is to round up the week with a report on manufacturing activity in the Chicago region, revised data on consumer sentiment and a report on personal spending.

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Forex - Emerging market currency selloff deepens after Fed

The selloff in emerging market currencies showed no signs of easing on Thursday, after the Federal Reserve announced further cuts to stimulus, while a slowdown in Chinese factory activity also heightened risk aversion.

Emerging economies such as Turkey and South Africa rely heavily on foreign investor flows to fund their current account shortfalls, making them particularly vulnerable to a reduction in global liquidity as the Fed scales back stimulus.Unease over emerging economies intensified after the Federal Reserve rolled back its bond purchasing program by another $10 billion to $65 billion-per-month at its policy meeting on Wednesday.

Risk aversion was also fuelled by renewed concerns over a slowdown in China after revised data on Thursday showed that China’s HSBC manufacturing index ticked down to a six-month low of 49.5 this month, below the preliminary estimate for 49.6.

The Turkish lira was down more than 1% against the dollar, having lost all of the gains created by Tuesday’s night’s massive interest rates hikes.

USD/TRY hit session highs of 2.3012 and was last up 1.41% to 2.2925. The pair fell to lows of 2.1637 on Wednesday.

Turkey’s central bank raised its overnight lending rate to 12% from 7.75% on Tuesday night. The bank also raised its one-week repo rate and its overnight borrowing rate in a bid to stave off inflation and shore up the lira.

The South African rand weakened to more than five-year lows against the dollar, one day after its central bank took markets by surprise with a rise in borrowing costs.

USD/ZAR hit session highs of 11.3907, and was last up 0.24% to 11.3445.

The South African Reserve Bank raised its benchmark interest rate to 5.5% up from 5.0% on Wednesday, the first rate hike since June 2008.

The central bank said a sustained depreciation of the rand will "significantly" raise the risk to the inflation outlook.

Meanwhile, the Hungarian forint fell to two year lows against the euro, with EUR/HUF advancing 0.98% to 312.210.

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Taper 2: Fed announces $10 billion taper – USD advances

The FOMC announced a second taper of another $10 billion as expected, with $5 billion coming down from treasuries and $5 billion from MBS. Despite the weak Non-Farm Payrolls, the US economy seems to be on track, continuing its slow and steady recovery. The rout in emerging markets was not expected to move the members of the FOMC. This is Ben Bernanke’s last rate decision, as he steps down on January 31st and hands the baton to Janet Yellen. Changes in the statement, especially the forward guidance and the state of the economy  are closely watched by the markets, and they are marginally more positive.

The US dollar was somewhat lower towards the announcement, with EUR/USD trading around 1.3670, GBP/USD around 1.6580 and USD/JPY just above 102. After the release, the USD is slightly stronger.

Statement

The forward guidance is quite unchanged. The outlook for the economy is slightly better with the job market now seen as “showed further improvement”, rather than mixed. The economy has picked up in recent quarters, according to the announcement.

Forward guidance was adjusted in December. The Fed still says that “current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent”.

Here is the first paragraphs from the announcement:

growth in economic activity picked up in recent quarters. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable

For the first time in a long time, the Fed voted unanimously on the move: no dovish dissenters nor hawkish ones.

Market reaction

• EUR/USD dropped from 1.3670 to 1.3640,. Another big tests awaits the pair: see how to trade the US GDP release with EURUSD.
• GBP/USD is sliding down from 1.6580 to 1.6550.
• USD/JPY is quite stable at 102.08.
• AUD/USD is down 30 pips from 0.8770 to 0.8740.
• USD/CAD is up from 1.1140 to 1.1150.
• NZD/USD is down from 0.8275 to 0.8245.

Background

The Fed made the historic change in policy on December 18th by announcing QE tapering of $10 billion. The prospects were for a total end of QE by the end of 2014.

According to purchasing managers’ indices, retail sales and various other measures, the recovery in the US continues at a steady pace, and is getting ready to walk on its own. The only thing that could have slowed it down was the Non-Farm Payrolls report, that showed a gain of only 74K jobs in December. Nevertheless, this was eventually shrugged off by the markets.

One of the reasons for markets to shrug it off was the music coming from the Fed: various FOMC members seemed to support further tapering. Even a dovish member Narayana Kocherlakota hinted he wouldn’t vote against another taper.

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European stocks open lower after China data, Fed taper; Dax down 0.1%

European stock market were lower after the open on Thursday, after the Federal Reserve announced plans to further taper stimulus and following the release of disappointing Chinese manufacturing data.

During European morning trade, the EURO STOXX 50 fell 0.25%, France’s CAC 40 shed 0.15%, while Germany’s DAX 30 declined 0.1%. 

Elsewhere, Spain’s IBEX 35 dipped 0.3% and Italy’s FTSE MIB index inched down 0.1%, while in London, the FTSE 100 edged down 0.25%.

The Fed said Wednesday that it would reduce its monthly bond buying program by USD10 billion to a total of USD65 billion a month, in a widely anticipated decision.

The central bank left unchanged its statement that interest rates are likely to remain low even after the unemployment rate drops below 6.5%, the threshold at which the central bank has previously said it would start to consider rate increases.

Data confirming a contraction in China’s manufacturing sector also weighed. China’s final HSBC Purchasing Managers Index released earlier fell to a six-month low of 49.5 in January from a preliminary reading of 49.6 and down from 50.5 in December.

Market players continued to monitor liquidity conditions in emerging markets, such as Turkey and South Africa. Emerging markets economies have been hard hit in recent sessions by worries over the impact of cuts in Fed stimulus and concerns over a possible slowdown in China.

Financial stocks were broadly lower, as French lenders BNP Paribas and Societe Generale fell 1% and 0.9%, while Italy’s Unicredit and Spain’s Banco Santander slumped 1.2% apiece.

Meanwhile, across the Atlantic, U.S. equity markets pointed to a higher open. The Dow Jones Industrial Average futures pointed to a 0.3% increase, S&P 500 futures signaled a 0.3% gain, while the Nasdaq 100 futures indicated a rise of 0.6%.

Nasdaq futures were boosted after Facebook reported better-than-expected quarterly earnings after Wednesday’s closing bell. The stock was up 10% in pre-market trade.

The U.S. is to publish preliminary data on fourth quarter economic growth. The nation is also to release the weekly report on initial jobless claims and data on pending home sales
.

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Forex Trading Signal for 30th January 2014

                                                                                


Japan (Tokyo)                               United Kingdon (London)                        USA (New York)

For more easy access,,,,,,Download our mobile application on your mobile :   Click Fxsignals 

EUR/USD

 Up Trend :

 (1) BUY

E/P: 1.36538

T/P: 1.36738

S/L: 1.36238

 

GBP/USD

Down Trend:

(1) SELL

E/P: 1.65603

T/P: 1.65403

S/L: 1.65903

NOTE: The above posted Signals are delayed 2 - 4 hours after it has been  generated.
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