Week in FX Americas – Fed Statement and Weak European Data Boost USD

The market is looking at the US Federal Reserve for guidance in these turbulent times. Fed Chairman Ben Bernanke is set to step down early next year and his successor should have been announced already. Larry Summers a favourite stepped down under strange circumstances which have a political underpinnings. Janet Yellen the current deputy chair was not the Obama’s administration first choice, but she continues to be the economist’s choice.

The Fed has been on the back foot starting this summer. The announcement of a planned reduction of its bond-buying program was announced with much certainty, but no schedule. The market suddenly exhibited a dollar exuberance that was detrimental to emerging markets. A lack of announcement of when and or what the tapering plans are, have hurt the dollar. The pain was at its most intense after the US shutdown.

The Federal Open Market Committee meeting this week was heavily anticipated. There were two main scenarios on the table. One, a continuation of the dovish rhetoric from Bernanke and Co. that would stress the Fed was vigilant on US economic indicators. Two, a more proactive stance with an announcement and details on taper before the year end.

The market did not get either scenario, but instead the Fed put forth a less dovish statement where the Fed will continue to be vigilant and look for improving economic conditions, but the omission of the “tighter financial conditions” was seen as a hint that tapering is not out of the question before the end of the year. The USD got a boost from the announcement and bounced back versus the major pairs.

European conditions deteriorated this week and exporters in the continent continue to protest the high level of the EUR. The rise of the single currency has finally put a dent in German confidence and production which is vital for the economic recovery of the eurozone.

A Fed successor will most likely be named before the central bank decides to alter its bond-buying program as this major decision is sure to mark their tenure.

WEEK AHEAD

* AUD Reserve Bank of Australia Rate Decision
* NZD Unemployment Rate
* AUD Employment Change
* AUD Unemployment Rate
* GBP Bank of England Rate Decision
* EUR European Central Bank Rate Decision
* USD Gross Domestic Product
* USD Personal Consumption
* USD Change in Non-farm Payrolls
* USD Unemployment Rate
* CAD Unemployment Rate
* CAD Net Change in Employment
* USD U. of Michigan Confidence
* CNY Consumer Price Index

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza