Surprise from the FED - InvestingChannel

Surprise from the FED

In early trading of 2013, currencies have been reasonably lively, with healthy intraday moves in most pairs. Gains from the first trading day have been largely surrendered by now, with the notable exception of the AUD and the CAD. Volatility persisted on Thursday following the release of minutes from the last FED meeting. As we recall, the central bank tied its interest rate policy to the unemployment level. This in turn suggested that interest rates would remain at depressed level for the foreseeable future, perhaps even few more years. In addition, the FED promised to keep buying long-term bonds, in order to maintain that part of the yield curve as low as possible.

Today’s release made this outlook a little cloudy. The minutes revealed that some board members would like end all easing steps sometime during 2013. This indicates dissent in the ranks, which some view as detrimental to prolonged low-rate policy. We should get some answers later in the year, but as of right now doubts are creeping in about sustainability of QE steps. Whether it was only a one-day blip or a start of something bigger, the US Dollar rebounded following the news, especially versus European currencies. This volatility is likely to continue tomorrow, because of the employment data from the USA. Analysts expect to see 150 K new jobs (NFP) and 7.7% unemployment rate. Let us not forget about similar release from Canada – the Loonie always responds sharply to these figures.

The Australian Dollar finally experienced the rally I had been waiting for. There was a false start a week ago, which caused a small loss, but the next runup was much better. It started a little shaky, although eventually the AUD jumped significantly once the markets opened in 2013, quickly reaching my target of 1.0460. That is what I was looking for – a good size bounce on the hourly chart, not necessarily longer-term change in sentiment.

For Friday, I will stick to short-term trades following the opening of the London session. My intention is to get out before the NFP report, as markets behave unpredictable once the data hits the wires. However, if clear trends develop after the announcement, I will try to join in and catch a few pips before the close.

Mike K.

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