Collinson FX market Commentary: March 22, 2014 Click here to find out how to get CollinsonFX's free iPhone app
Markets continued to settle with equities taking advantage of the 'new norm' in Europe. The acceptance of Russian expansionism has changed the balance of global powers with power resting with those prepared to use it rather than capabilities. Economic markets moved on and focused more on the US economy.
Fed Chairman, Yellen, endorsed the recovery in economic activity and proceeded with the tapering process. The Fed has confirmed improved economic conditions and thus reducing the need for monetary stimulus. This has given momentum to the USD with the EUR dropping to 1.3775 and the GBP breaking below 1.6500. US Economic data releases reinforce the recovery with the Philly Fed survey confirming an improvement in Manufacturing activity.
Leading Indicators also reflected economic improvements and improved confidence pushing the reserve currency up and forcing the AUD back to 0.9020 and the KIWI to 0.8515. Look for further Geo-political activity to test vulnerable markets. Collinson FX market Commentary: March 20, 2014
There were no new developments on the Geo-political front therefore attention turned to economic events. The center of the markets attention was the FOMC meeting and Yellens first press conference as Fed Chairman. She dispelled dovish expectations and continued the tapering of QE Infinity.
She cut a further $10 Billion from the added stimulus in line with dictated policy.She noted the US economy continued to grow, although at a slower rate, due to the harsh winter. She noted that unemployment remained high and removed the 6.5% trigger rate due to the extension of the low interest rate environment. She noted that rates will remain low but envisioned some rate increases later in the year and into 2015.
Inflation remained low allowing the loose monetary policy. This immediately boosted the flagging USD with the EUR dipping back to 1.3866 and the GBP 1.6570. The turnaround extended to the commodity currencies with the AUD retreating to 0.9010 and the NZD 0.8525. The continuation of tapering, will impact the Dollar in a positive fashion, but may have an adverse effect on the Equity bubble.
The good news is the US economy is improving slowly, although growth remains historically low, with Unemployment well above trend. No major developments in the Ukraine, has allowed more settled markets, but they remain vulnerable to upheaval which would see flows to the safety of the Dollar. Collinson FX market Commentary: March 19, 2014
A wide ranging historical speech by Russian President seemed to alleviate fears surrounding the Ukraine and allowed risk appetite to flood back into equity markets. Markets interpret the Geo-Political pressures relented and allowed markets to consider economic data and Central bank activity. The speech appeared to announce the lack of enthusiasm to split the Ukraine, although he did just this, by announcement of Crimean integration into the Motherland.
It seems he may avoid a split by integrating the whole of the Ukraine! The surge in Equities allowed a boost to the EUR as the USD slips ahead of the FOMC announcement. The fall in the Dollar seems to indicate a halt to tapering although most market pundits assume Yellen will continue.
The GBP bucked the trend, with Bank of England commentary signalling record low interest rates and easing monetary policy, allowing the currency to drop back to 1.6585. In contrast the EUR surged to 1.3925 but remains vulnerable ahead of the 1.4000 mark.
RBA Minutes may signal an end to interest rate cuts which added momentum to rises from a weaker Dollar and improved risk appetite. The AUD rallied to 0.9130 and the KIWI surged to 0.8625. The interest rate differential remains attractive, driving the commodity currencies north, but they remain extremely exposed to a shift in uncertainty, driven by issues in the Ukraine. Collinson FX market Commentary: March 18, 2014
Geo-Political developments went as expected, with a landslide vote in Crimea to join Russia, away from the Ukraine. The Ukrainian revolutionaries, who overthrew the elected Government, have lost the Russian minorities and are now looking for support from the Motherland.
This referendum went as planned, removing some uncertainty, and markets reacted accordingly. The focus moved to markets and US Industrial and Manufacturing production improved, in the lead up to tomorrows FOMC, two day meeting.
Yellen has indicated that tapering should continue unless there is a serious deterioration in US economic conditions. This will boost confidence, although a suspension in the reduction in stimulus, should continue to inflate the equity bubble.
The EUR broke above 1.3900, giving some validity to possible extension of QE Infinity, and allowing the GBP to hold 1.6630. Risk appetite rose, giving support to the AUD, which is testing 0.9100 dragging the KIWI to 0.8540. These currencies will continue to trade risk and uncertainty with Geo-Political developments in the Ukraine, will continue to dominate markets, with little likelihood of a solution in the near future. For more on Collinson FX and market information see:
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