Forex headlines for December 18, 2013:
- Fed announces $10 billion taper
- Fed to keep exceptionally low rates until jobless rate falls ‘well below’ 6.5%
- Fed forecasts: Officials see faster growth
- Bernanke: Recent data have increased confidence that labor market gains will continue
- Bernanke: End of QE ‘certainly’ won’t be at mid-year
- Bernanke: Inflation is ‘more than a little concern’
- Hilsenrath on the Fed
- US housing starts rise to highest since Feb 2008
- UK rating affirmed at AA+ by Fitch, outlook stable
- Fitch affirms South Africa at ‘BBB’ with a stable outlook
- ECB’s Nowotny says interest rates to remain low
- Canadian wholesale sales +1.4% vs +0.3% expected
- Japanese government may drop ‘deflation’ from Dec 24 economic report – Nikkei
- WTI crude up 43-cents to $97.65
- Gold down $11 to $1219
- S&P 500 gains 30 points to record close 1810
- GBP leads, JPY lags badly
The Fed gave US dollar bulls an early Christmas present. The market was certainly messy as it was unwrapped but eventually it turned into a straight-forward dollar rally. The bottom line is that the Fed tapered and they didn’t deliver much for the doves besides saying unemployment will need to fall well below 6.5% before rate hikes and that tapering will be a slow process (no surprise).
The market reaction was a mess. An early reaction was dollar weakness and EUR/USD climbed to 1.3811 before slumping back and chopping around. Eventually the downside won out and a big bearish engulfing pattern is on the chart. The close below 1.3700 highlights more declines.
USD/JPY tried the downside, hitting 102.58 then turned around and ripped to a cycle high at 104.28. There is talk about a barrier at 104.50 but technical resistance is negligible. To infinity and beyond!
Cable rose high into the session on the UK jobs report. It took hold of the initial post-Fed weakness to jump to 1.6485 but a 1.65 barrier and dollar weakness knocked it back down 100 pips.
This is it, the taper is here, year end might be choppy but these trends are here to stay.