September 2014

In the trading room today: EUR, USD and GBP New Trading Week Outlook. As the new trading week gets underway, we explain why the EUR and the USD will be the two currency majors that will take the center stage in the days ahead and explore the near-term outlook for the single currency and the greenback, we list the Top 10 spotlight economic events for the week, we examine the consensus forecasts for the upcoming economic data, we analyze the latest trend developments in the EUR/USD currency pair, we take a look at the GBP/USD pair, we note the move closer to the 110 yen level for the USD vs JPY, we highlight the market’s reaction to the report of currency market intervention by the Reserve Bank of New Zealand, the German CPI, and the U.S. GDP, we discuss new forecasts from Nomura Hodlings and Westpac Banking Corp., and prepare for the trading session ahead.


USA 

September 26, 2014 (Bureau of Economic Analysis) – Real gross domestic product – the output of goods and services produced by labor and property located in the United States – increased at an annual rate of 4.6 percent in the second quarter of 2014, according to the “third” estimate released by the Bureau of Economic Analysis.

In the first quarter, real GDP decreased 2.1 percent. The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 4.2 percent.

With the third estimate for the second quarter, the general picture of economic growth remains the same; increases in nonresidential fixed investment and in exports were larger than previously estimated (for more information, see “Revisions” on page 3). The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Real GDP increased 4.6 percent in the second quarter, after decreasing 2.1 percent in the first. This upturn in the percent change in real GDP primarily reflected upturns in exports and in private inventory investment, accelerations in nonresidential fixed investment and in PCE, and upturns in state and local government spending and in residential fixed investment that were partly offset by an acceleration in imports.

In the trading room today: Has the USD Strengthened Too Fast Too Soon? With the currency market quieting a bit ahead of the important events next week, we take a close look at the USD and ponder if the greenback’s too-fast, too-soon rally against the other major currencies might be due for a welcome price correction, we analyze the test of a support area for the EUR/USD currency pair, we note the range in the GBP/USD pair, we keep an eye on the pullback of the USD vs JPY, we highlight the market’s reaction to the German Ifo Business Climate Index and the Euro-zone Composite PMI, we discuss new forecasts from BNP Paribas, Standard Bank and UBS, and prepare for the trading session ahead.

Despite a quieter market we still see good trading opportunities  - see AvaTrade’s Forex Trading  spreads on the EUR/USD and GBP/USD to start with.

 

In the trading room today: Is the GBP Ready for Another Leg Higher? As the dust settles following the Scottish independence vote and the win for the “no” campaign, we focus on the GBP and explore the potential for a continuation of the pound sterling’s bullish trend against the USD, the EUR, and other currency majors, we analyze the latest trend developments in the GBP/USD and the EUR/GBP currency pairs, we take a look at the pressure in the EUR/USD pair, we note a resistance area for the USD/JPY pair, we highlight the market’s reaction to the Euro-zone Consumer Confidence and the U.S. Existing Home Sales, we discuss new forecasts from Bank of America and Standard Bank, and prepare for the trading session ahead.

In the trading room today: What’s Next for the USD after the Fed Meeting? In the aftermath of the Federal Open Markets Committee’s monetary policy announcement, we examine the results from the Fed’s meeting and explore how the U.S. central bank’s policies could drive the future trend direction of the U.S. dollar, we analyze the latest trend developments in the EUR/USD currency pair, we continue to monitor the GBP with the Scottish independence vote underway, we keep an eye on the rally of the USD vs JPY, we highlight the market’s reaction to the FOMC and the Swiss National Bank interest rate announcements, the latest polls from Scotland, and the U.S. Jobless Claims, we discuss new forecasts from Commerzbank and UBS, and prepare for the trading session ahead.

Release Date: September 17, 2014

For immediate release

Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. On balance, labor market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources. Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in October, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $5 billion per month rather than $10 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $10 billion per month rather than $15 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will end its current program of asset purchases at its next meeting. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Narayana Kocherlakota; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action were Richard W. Fisher and Charles I. Plosser. President Fisher believed that the continued strengthening of the real economy, improved outlook for labor utilization and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation than is suggested by the Committee’s stated forward guidance. President Plosser objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for “a considerable time after the asset purchase program ends,” because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.