The US will continue to
unleash its bond-buying program, while Europe could cut rates again in the
coming months. The US dollar might rise against major currencies until the middle
of the year.
US: Tightening continues
After January and
February, the Fed will proceed with its tapering program for an undefined period
of time. The announcement was also confirmed by Mr. Williams, the president of
the Federal Reserve of San Francisco, who is considered a dove. Mrs Yellen said,
during the Senate Banking Committee hearing on Thursday, the Fed is watching
economic data very closely. In reality, the latest economic data has been tepid
in the US. As an example, in January, industrial production declined 0.3%,
while manufacturing slumped 0.8%. The deterioration is confirmed by the
manufacturing survey from the Federal Reserve banks of New York and
Philadelphia. Jointly, the two indexes lost almost three
points from January to February. Nonetheless, the employment component stayed,
strong at 54.2. Perhaps, it is anticipating a rebound in the coming months. In
effect, the bad weather might have played a role in the latest economic
slowdown Housing starts fell 16% in December and are now at the lowest level
since 2011, on the year-to-year basis.
ECB: Cutting or not cutting
The ECB is one of the
few central banks that have room to cut interest rates from 0.25% to 0.10%. Will
the ECB do it? The economy in Europe is picking up, but there is no evidence of
acceleration yet. In February, the composite PMI, which mirrors the GDP, was almost
53 for the eurozone. Manufacturing is beginning to perform well. Good numbers
in business expectations and new orders seem to anticipate further growth.
Germany is, once more, leading the way. Its economy is close to showing signs
of expansion. In the last quarter of 2013, exports rose 2.6% compared to the
previous quarter, while business confidence is at the highest of the past 2.5
years. Nevertheless, employment stays subdued in the whole eurozone and inflation
is mild. In January, the Eurozone’s inflation rate fell to 0.7%. If the ECB
does not act shortly, it will fuel speculations that rates will soon be increased.
This should support the value of the euro, contracting exports and putting
prices under a renewed downside pressure.
Seasonal and technical
components appear to anticipate an increase of the March US dollar index toward
81.60/82.30 by mid-year.
Angelo Airaghi, www.profitson.com
The
data contained herein is believed to be drawn from reliable sources but cannot
be guaranteed, neither the information presented nor any opinion expressed
constitute a solicitation of the purchase or sale of any forex, futures or
commodity product. Those individuals acting on this information are responsible
for their own actions. Forex, futures and commodity trading may not be suitable
for all recipients of this report.
2 comments:
Your post addresses an important and interesting question. Do you have a strategy recommendation given the potential mid year difficulties for the dollar?
The US dollar might increase until mid year, considering technical and fundamental factors. Will these hypothetical l bullish factors change in the second part of 2014?
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