Good day to you.
We had a turbulent and very important week. Several central banks made interest rate announcements and the mid term elections of the US were held. US FOMC statement was released followed by the US Non-Farm Payroll.
In the FOMC meeting, the committee decided to spend 600 billion US dollars to buy long term bonds in an effort to stimulate the US economy. The decision was probably due to
- slow economic recovery
- poor employment figures
- low levels of inflation trending in the past few quarters.
The 600 billion US Dollar will last until the end of the second quarter 2011, dividing out to 75 billion US Dollar monthly. Target of purchase will be the US government bonds.
Having said so, there remained opposition towards this program.
The US Fed also mentioned that close monitoring will be done and if required, adjustments to the program would be made.
It seemed that the announcement was pretty much priced in and hence in order to continue with the bullish momentum, further positive economic data must be delivered from the various regions. The usual market driver of risk appetite or risk aversion will apply. The American economy being the target market of the quantitative easing program, will probably be closely monitored for signs of improvement. Do note though that any effects will probably take months before it can be seen.
I mentioned earlier that the US Feds said that the quantitative easing program may be subjected to changes based on the situation of the US economy. Therefore this will probably increase the importance of the US economy statistics. The US Non-Farm Payroll came out much better than expected last Friday and a knee jerk reaction was observed. The US Dollar strengthened. If this keeps up, the US Feds may reduce the amount of quantitative easing due to the improving economic situation. This may cause the US Dollar to strengthen more.
An article was published in which analysis suggests that the expansionary policies of the US government might have caused the US economy to be "unhealthy and diseased". The US Commerce Department statistics shows an approximate 2% economic growth for the US in the third quarter of 2010. This may spark concerns among international investors. It was mentioned that consumer consumption did not increase significantly and this is not what a flourishing economy should be.
I think that the EUR/USD will probably remain elevated for the first half of 2011 and this will affect the exports of the Euro Zone.
From a technical point of view:
The US Non-Farm Payroll which was better than the forecasts may bring about an environment of risk appetite. If so, the EUR/USD may resume bullish momentum. Do note that 1.4280 is a strong resistance but if broken, it may open up further bullish moves towards 1.4440. On the other hand, if the support of 1.3700 is broken, we may see the currency pair sliding down towards 1.3360.
Have a great weekend.
Masoud.
Masoud is a businessman and a Senior Forex Koala. Connect with him at our page on Facebook.
Related Forex Articles from the Koala Forex Training College.
- Quantitative Easing. What Why How
- The US Unemployment Crisis
- Support and resistance lines are never a single pip
