Federal Reserve Chairman Ben Bernanke announced during the latest FOMC press conference held on Wednesday that the Fed is looking into initiating the unwinding of its $85 billion monthly bond-buying scheme towards the end of the current year.
According to the Federal Open Market Committee, positive developments have been noted in the housing and labor market, including household spending as well as business fixed investment. At the same time, FOMC concurred that the jobless rate remains elevated, although they expect it to taper off later on. Some analysts are now projecting a $20 billion cut in the QE by the third or fourth quarter of this year.
The US Federal Funds Rate was also announced it was maintained at less than 0.25 percent. Philly Fed Manufacturing index surprised the market with an advance of 12.5, following Monday’s equally-surprising Empire State Manufacturing Index reading which stood at 7.8. US CPI remained low at 0.1 percent.
In the UK, Bank of England’s Monetary Policy Committee, for the fifth time, voted 3-0-6, comprising of 3 votes to increase asset purchases and 6 votes to maintain asset purchases at GBP375 billion (or $587 billion). BOE Governor King, along with Fisher and Miles, voted for an increase in the asset purchase, and lost to the majority which expects the economic recovery and that it is “becoming more established.” The MPC also voted 9-0 to maintain rates at 0.50 percent. King will be replaced by ex-Bank of Canada chief Carney this month.
Meanwhile, UK Public Sector Net Borrowing rose less than expected to GBP10.5 billion, thanks to windfall tax payments by Swiss banks. UK Retail Sales in May jumped 2.1 percent, a huge turnaround from the prior month’s -1.1 percent reading.
Lack of bullish interest in Gold to thrust through the $1,400 level paved the way to a strong decline this week. Strong selling saw a $120 decline towards fresh lows—levels unseen since September 2010. Gold must make a quick recovery back to $1,400, else bearish momentum would pick up further.
Oil plunged a little over $6 in just three days, after the $99 level failed to gain support from the bulls as pointed out last week. Majority of the fall happened on Thursday and Friday, after several levels, from $98 down to $94, crumbled due to heavy selling pressure. If further selling goes on, a break of $91 would expose $85-$89.
EURUSD tumbled during the last three days of this week, after 1.3300 failed to hold on Wednesday and Thursday. It would be interesting to see whether bulls can make up for lost time and prices. 1.3000-1.3100 is the key area to watch.
USDJPY buyers did a spectacular job this week, printing five straight bullish days and recovering most of the prior week’s 550-pip decline. It was an impressive feat and it would be equally fascinating to see whether they could keep up the momentum this coming week. 99-101 is the near-term big barrier.
Except for Thursday, it was a one-way direction for GBPUSD this week, after the very fleeting trip above the 200-day MA around 1.5700. 1.5400 should hold this week to prevent an attack on 1.5100-1.5200.
The Week Ahead
Monday will be very quiet, with only Germany’s Ifo Business Climate coming out as the key economic release.
The pace picks up slightly on Tuesday with the release of UK BBA Mortgage Approvals, UK Inflation Report Hearings; US Durable Goods Orders, S&P/CS Composite-20 HPI, CB Consumer Confidence, and New Home Sales.
On Wednesday, there are GfK German Consumer Climate; UK BOE Financial Stability Report and CBI Realized sales; US Final GDP.
Thursday will be the busiest of the week with the release of New Zealand Trade Balance, ANZ Business Confidence; German Unemployment Change; Euro-area M3 Money Supply; UK Final GDP and Current Account; US Personal Spending and Income, Core PCE Price Index, Pending Home Sales, and Unemployment Claims.
Friday will be relatively busy with Japan’s Tokyo Core CPI; UK Nationwide HPl German Retail Sales; French Consumer Spending; Canada’s GDP; and US revised UoM Consumer Sentiment and Chicago PMI.