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ECB & FED should Impose Restriction on QE Lending – May 02

May 2, 2013
As expected nothing very unusual from FED. The tone was cautious FED did mention in its note that they are prepared to increase or reduce the pace of purchase to maintain appropriate policy accommodation as the outlook for inflation and labour market changes. It is understandable that FED will act accordingly. Interestingly they did not show any major concern with the recent declining trend suggesting that they are confident of recovery.
I think the impact of sequester and adjustments made in tax structure had bitten consumer demand causing fall in inflation. It seems that Fed is of view that this could be temporary and they are hoping for a bounce back. FED minutes due to be released on May 22 will better idea about the Fed members discussing economy.
Today, market will focus on ECB announcement, but prior to that the release of PMI data from Euro-zone will set the tone. The data is not expected to show any major recovery, but any evidence of increased activity in the Euro region could baffle the market. Market has already priced in rate cut and will not be surprised with additional measure to stimulate regions economy due to sharp slow down in economic activity and record high rate of unemployment.
I have frequently argued that FED and ECB have a flawed monetary policy or needs more clarity about the purpose of its ongoing easing policy. They have to decide about their lending strategy. If the money is spent on debt restructuring or Bank Capitalization then expecting overall economic recovery is a wishful thinking. Unless policy make make sure that credit is meant for economic stimulation and should only go to small or medium size businesses that will help in creating new jobs and improve growth, speculators and opportunist will continue to play havoc with with QE money.
FED and ECB should adopt a policy and make sure that QE lending does not go waste and all banks and lending financial institutions should ensure that that this money does not go into the hands of speculators. They should make it mandatory requirement to report all transaction against QE lending. For positive result, violators should be severely penalized.
GMT 3:27 – EURO at 1.3073 =  Euro could still maintain its firm tone and I will not be surprised to see break of my weekly target extending rally towards 1.3298, it should exhaust around this level, only break would risk for 1.3333. Support is at 1.3040, which may not surrender with ease. Break would be extremely bearish and should challenge and break 1.2910 in the coming days.
GMT 3:34 – GBP @ 1.5550 = Support 1.5510 should hold for another upside move. 1.5598 remains a strong resistance levels , but needs to push beyond 1.5625-30 for more gains. However. 1.5460-70 is downside levels, if breaks could be very bearish.
GMT 3:37 – JPY @ 97.35 = We see a very similar pattern today, 97.80 may not surrender. Only break risk for 98.20. Dip below 96.70-80 could see a move towards 96.40.
GMT 3:39 – AUD @ 1.0250 = Aussie still looking weak and could hold below 1.0280-90 for 1.0180-90
GMT 3:42 – GOLD @ $ 1455 = Looking exhausted. Do not see much strength beyond $ 1465-70 levels as break of $ 1442-45 levels will increase chances for a test of $ 1432-35 zones. Or else $ 1477.
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