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FED is less worried, as Economic Distortion is caused by Politician – Oct 31

October 31, 2013
It seems that the market could not get clearer direction from FED FOMC statement, which apparently looks as if  it was almost repetition of its previous policy stance. This could be intentional due to all the confusion caused by shutdown that distorted the US economic numbers and hence, FED may have avoided giving tapering hint, as the timing may not be appropriate. There could be minor delay, but no shift in its strategy/policy.
Since US Central Bank did not alter its previous policy statement and by sticking to its earlier (September) sentence that the economy is improving at a “Moderate Pace”. FED’s tone is surely firm and confident, which could mean that FED may still be considering to initiate its winding program this year (Fed meeting on Dec 17-18). If we go by the FED statement, Fed certainly looked less Dovish this time.
Fed’s problem is that it has been maintaining its short-term zero interest rate policy since December 2008 and so far the injected amount is close to USD 4 Trillion that has inflated its balance sheet, but the economic growth does not justify recovery matching the size of monthly liquidity injection in true sense that has numerous risk factor.
What we should not overlook is that the US economic distortion during recent government shutdown was not caused by FED policy error, it was purely fiscal matter and politician should be held responsible for fiscal indiscipline. Fiscal issue is now a regular feature and would continue to haunt US economy at various intervals unless settled for ever, which is not a possibility and this should give enough reasoning to the FED and it official to start complain/defending at various levels. I think market will be eagerly waiting to hear the follow up speeches by the Fed officials for more clues. However, release of US economic data will surely provide more guidance about the trend.
GMT 3:02 – EURO @ 1.3730 = Top around 1.3750-60 and may struggle to convincingly move beyond 1.3790. See more downside risk on break of 1.3705 for a test of 1.3680-85 levels. I will not be surprised if 1.3640-50 is challenged
GMT 3:07 – GBP @ 1.6033 = Only break of 1.6045-50 may pave another 20 pip jump or else unless move beyond 1.6098, Cable is likely to remain under pressure break of 1.5995 will pave way for a test of 1.5970-75 zones.
GMT 3:10 – JPY @ 98.44 = Japanese currency may not gain beyond 98.10 levels, but needs to clear 97.70-75 for a test of 98.90-95 zones or else 97.85.
GMT 3:13 – AUD @ 0.9496 = Aussie may struggle beyond 0.9525-30, but needs to break 0.9470 for test of 0.9440-50 zones or else 0.9550.

Twitter @asadcmka

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