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Fed may not deviate from last FOMC – July 30

July 31, 2013
As we get close to the FED’s decision on its policy stance, its the language that will guide the market in the absence of FED Chairman’s press conference, as he is not due to speak. I disagree with the with view that FED members will shift their stance on forward guidance towards highly accommodative approach. Lot of people are talking of slower growth in in 2nd quarter, but forgetting that it was past factor and the contributing element was sequester and tax. The surprising element of extreme low or high is a possibility and market could react accordingly.
Jobs data due on Friday will be more critical, as FED emphasis to reduce its asset buying will be largely based on economic performance. Today’s ADP employment change data that indicates about change in employment pattern in USA that also impacts growth and consumer spending will also help in determining the trend.
Bernanke has been very clear that asset purchase and interest rate are two different subjects that should not be mixed up. If FED does not plan to reduce its asset purchases amount then why did he find it necessary to explain that they are two separate issues. My understanding is that Fed will taper down because it cannot print money forever, but for growth and employment purpose and to encourage bank lending for stable business activity, interest rates will be kept low. Low rates will not inflate debt position, cost of debt funding will not rise, low interest rate reduces risk of surge in non performing loans and helps corporate sector profitability.
Therefore, FED may once again assure of maintaining low interest rate by benchmarking it with both, inflation and jobs target. But Fed Chairman is smartAs we get close to the FED’s decision on its policy stance, its the language that will guide the market in the absence of FED Chairman’s press conference, as he is not due to speak. I disagree with the with view that FED members will shift their stance on forward guidance towards highly accommodative approach. Lot of people are talking of slower growth in in 2nd quarter, but forgetting that it was past factor and the contributing element was sequester and tax. The surprising element of extreme low or high is a possibility and market could react accordingly.
Jobs data due on Friday will be more critical, as FED emphasis to reduce its asset buying will be largely based on economic performance. Today’s ADP employment change data that indicates about change in employment pattern in USA that also impacts growth and consumer spending will also help in determining the trend.
Bernanke has been very clear that asset purchase and interest rate are two different subjects that should not be mixed up. If FED does not plan to reduce its asset purchases amount then why did he find it necessary to explain that they are two separate issues. My understanding is that Fed will taper down because it cannot print money forever, but for growth and employment purpose and to encourage bank lending for stable business activity, interest rates will be kept low. Low rates will not inflate debt position, cost of debt funding will not rise, low interest rate reduces risk of surge in non performing loans and helps corporate sector profitability. 
Therefore, FED may once again assure of maintaining low interest rate by benchmarking it with both, inflation and jobs target. But Fed Chairman is smart and may not deviate much from his last FOMC and hence market will once start looking at the economic numbers and will wait for Fed minutes for more guidance
Meanwhile, during Asian & European session US Dollar may have a weaker tone as recent release of positive German & European data could provide some support, but as we get close to policy announcement we could be heading for a subdued trading session. Gold may struggle to maintain its strength.
Twitter  @asadcmka
EURO @ 1.3264  = Likely to hold 1.3240-50 levels for a move towards 1.3290, break would encourage for a test 1.3310-15, or else 1.3215. However, in a bigger scenario the key support level is 1.3150 and major resistance at 1.3385.

GMT 2:55 – GOLD @ $ 1334 = Expecting choppy trading during the day, should top out around $ 1338-40 zones. Prior to US session break above $ 1346 will encourage for $ 1355, which is not a favoured move as, fall below $ 1327 confirms visit to $ 1315-20 zones.
In a bigger move after FED FOMC announcement the levels to watch is $ 1285 and $ 1375.
GMT 3:00 – GBP @ 1.5231 = Cable has strong resistance around 1.5270-780 zones, current fall could extend up to 1.5140 on break of 1.5180. However, upside move would help Pound to test 1.5340 zones.
GMT 3:04  – JPY @ 98.01 = Unless move beyond 98.40-50, risk is for more gains,as Japanese currency could test and break 97.70 for a move towards 97.30, or else 98.90.
GMT 3:07 – AUD 0.9039 = Aussie continues to struggle and could dip to test level of physiological 0.90 for of 0.8970-80 levels, unless holds below resistance 0.9080.
Interaction with my Subscribers during the day…………
9:07 AM    Hi sir,   Euro after DATA? Thanks
9:16 AM    Morning view is good enough for the moment, as I have nothing new to add unless you have something specific………………
12:36 PM    JPY @ 98.40 = Buy Yen STOPS 98.80……….
12:39 PM    an sell gold noe i didnt take position
12:44 PM   Euro should hold around 1.3180………   GOLD should hold $ 1312-15
12:47 PM   its going to choppy. Do not jump immediately. let marke cool down a bit……………….
1:35 PM   GOLD @ $ 1319 = Could test $ 1312
1:42 PM    Next level $ 1305-08………….
1:43 PM   GOLD @ $ 1316.50 = Next level $ 1305-08, should hold beloe $ 1322…….
 2:10 PM    Ok pals……….  Good luck to all…………………..
Cheers……………………………………
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