The dollar was broadly lower following the announcement by the Federal Reserve Wednesday that it would implement further monetary easing, in order to help the fragile US recovery. The pound joined the parade, posting gains against the greenback on Thursday. Under this monetary easing program, known as QE4, the Fed will purchase an additional $45 billion per month in Treasury holdings starting in January. As the Fed is currently buying $40 billion in mortgage bonds, this brings the total to some $85 billion per month. This level is expected to continue well into 2013.
The Fed is hoping that this step will bolster the US economy and lower unemployment, which remains close to 8%. Operation Twist, in which the Fed swapped short-term Treasuries for longer term U.S. government debt, will be phased out at the end of December. As well, the Fed kept the benchmark interest rate at below 0.25%, and noted that it does not expect to change these very low rate levels for the foreseeable future. In Brussels EU leaders from the bloc’s 27 countries are gathering for their final summit of 2012. High on the agenda is a proposal for the ECB to become the single supervisor of all 6,000 banks in the Eurozone.
In essence, the ECB would in essence take on the role of a “super banking commissioner, responsible for providing supervisory oversight of all banks in the Eurozone, and perhaps in the EU as well. The chair of the summit, Herman Van Rompuy, is looking for wide support for the program at Thursday’s summit, with the details to be worked out sometime in 2013. However, Germany may object to the proposal, which could be a major obstacle. Germany would prefer that German banks and saving institutions governed by a German banking regulator rather than the ECB, even though the latter is based in Frankfurt.
In economic news, UK CBI Industrial Order Expectations came in at -12 points, which
was well above the estimate of -17 points. In the US, Thursday’s releases were generally within expectations, but Unemployment Claims surprised the markets, dropping to a nine-week low.
GBP/USD for Thursday, Dec 13, 2012
GBP/USD Dec 13 at 14:00 GMT
1.6141 H: 1.6152 L: 1.6111
S3 S2 S1 R1 R2 R3
1.5930 1.5992 1.6060 1.6150 1.6247 1.6343
GBP/USD continues to push higher against the dollar, after losing some ground early in the European session. The pair is testing resistance at 1.6150, and could make further inroads if this line falls. On the downside, 1.6060 has strengthened as the pound continues to move higher.
• Current range: 1.6060 to 1.6150
Further levels in both directions:
• Below: 16060, 1.5992, 1.5930, 1.5850, 1.5750, 1.5648, 1.56, 1.5530 and 1.5414.
• Above: 1.6150, 1.6247, 1.6343, 1.6475, and 1.66.
OANDA Open Positions Ratios
GBP/USD bias continues strongly in favor of the short positions. However, we could see a change in the ratio following the Fed announcement of Q4, which allowed the pound to post limited gains against the dollar.
The pound has had a good week, gaining around 100 pips against the dollar. We could see some volatility as the markets continue to digest the Q4 announcement by the Federal Reserve. After gains all week, a correction downwards could be next.
• 11:00 UK CBI Industrial Order Expectations. Estimate -17 points. Actual -12 points.
• All Day: EU Economic Summit (Day 1 of 2).
• 13:30 US Core Retail Sales. Estimate 0.0%. Actual 0.0%.
• 13:30 US PPI. Estimate -0.5%. Actual -0.8%.
• 13:30 US Retail Sales. Estimate +0.5%. Actual +0.3%.
• 13:30 US Unemployment Claims. Estimate 368K. Actual 343K.
• 13:30 US Fed Announcement.
• 13:30 US Core PPI. Estimate +0.2%. Actual +0.1%.
• 15:00 US Business Inventories. Estimate +0.4%.
• 15:50 US Natural Gas Storage. Estimate -4B.
• 18:00 US 30-year Bond Auction.
*Key releases are highlighted in bold
*All release times are GMT