After a fairly long wait, the US Federal Reserve finally decided to start tapering, according to the latest FOMC statement released on Wednesday. The Fed decided to taper QE by $10 billion - $5 billion from mortgage-backed securities and another $5 billion from Treasuries. The interest rate was also held at 0-0.25 percent. Fed Chairman Bernanke said that the end of QE "certainly" would not happen at mid-2014. He also sees improved labor market conditions next year. Meanwhile, Fed officials also see better growth next year - they raised their growth forecast for 2014 from 2.8 percent-3.1 percent to 2.9 percent-3.2 percent and also cut the unemployment rate forecast to 6.3 percent from 6.6 percent.
In other news, US Existing Home Sales surprisingly decreased this November. Sales reached 4.90 million after posting 5.12 million sales last October. The Philly Fed Manufacturing Index also surprised with a weaker-than-expected 7.0 December reading.
In the UK, MPC Asset Purchase Facility and Official Bank Rate votes remained unchanged (0-0-9 votes, with 9 votes in favor of holding or status quo). Meanwhile, the Unemployment Rate has improved to 7.4 percent from 7.6 percent.
In Europe, the ZEW Economic Sentiment for Germany and the Euro-area jumped to 62.0 and 68.3, much better than expected (Germany's latest ZEW figure is a seven-year high).
Gold reached fresh 24-week lows after breaking the key $1,200 level. Despite this, the yellow metal managed to close the week just above this level. The more than 3-year low set last June 23 at $1,180 is in serious risk of getting run over soon. Bulls must protect $1,200.
After a weekly pause, Oil made a comeback this week and even created a new 8-week high last Thursday. Buyers must contend with potential sellers around $100-$102 before price can advance toward $104-$105.
EURUSD has been dragged 185 pips lower this week after encountering issues pushing through 1.3800 the prior week. Nevertheless, this pair is set to close the year with a bullish tone. Next major resistance into the brand new year would be the 1.4000 level.
GBPUSD refuses to make progress as it has now made its third weekly rejection at the 1.6400 level. With the plunge close to the 1.4800 level, GBPUSD is virtually unchanged this year. If the bullish momentum continues, this pair is on track to move toward 1.6500-1.700 next year.
With 8 straight weeks of pure upside culminating in a new yearly high and 61-month high, USDJPY is poised to keep chugging along and attempt for a move toward 110-120 next year.
The Week Ahead
As Christmas and the New Year are coming soon, this will be the lightest week in December in terms of data release.
Monday is light with a few economic releases such as Canada's Gross Domestic Product; US PCE Price Index, Personal Income, Personal Spending, and Revised University of Michigan Consumer Sentiment. Japanese banks are closed to celebrate the Emperor's birthday.
On Tuesday, there will be Bank of Japan's Monthly Report; France's Consumer Spending; UK BBA Mortgage Approvals; US Durable Goods Orders and New Home Sales.
The market will be virtually closed on Wednesday (Christmas Day) and Thursday, except for BOJ's Monetary Policy Meeting minutes and US Jobless Claims which are to be released on Thursday.
On Friday, Japan will dominate with the release of Household Spending, Tokyo Core CPI, Jobless Rate, Preliminary Industrial Production, Retail Sales, and Average Cash Earnings.