MARKET UPDATE: QE In The US Comes To A Standstill As Janet Yellen Gets In Line To Fill Bernanke’s Shoes

The result of last week’s FOMC Minutes in the US was largely centered on Janet Yellen’s nomination as the next Chairwoman of the Federal Reserve. Whilst estimates foretold that QE tapering was in the cards to be announced at last week’s Minutes – as was an imminent end to QE altogether by mid-2014 – neither topic came up seeing as the mere anticipation of Yellen coming to power in January made Bernanke put the QE subject on pause until she adopts the strategic decision making role. The outcome of the minutes boosted the US dollar, with the EUR/USD trading at 1.3460 and the USD/JPY at 98.30 on the day. US weekly jobless claims brought heavy disappointment when they climbed unexpectedly to 374K, as predictions had pointed towards a significantly lower 307K. The increase was the highest in almost a year, leaving many to ponder upon the underlying reason. Two sources of cause could be the government shutdown which has left many out of a job and computing problems in California following on from last month’s technical errors and the backlog of reports that ensued as a result. The most important fundamental news due this week in the US are the Initial Jobless Claims and the Philadelphia Fed Manufacturing Survey, both out on Thursday 17th and predicted at 357K and 15.4 respectively, with the CB Leading Indicator following on Friday 18th and forecast at 0.40%.

At the ECB press conference last week, it was once more decided that all rates would be left unchanged, with President Mario Draghi expressing that he is not too worried about inflation drifting further away from the central bank’s 2% target seeing as this is what they hadanticipated. During the press conference the EUR/USD rose above 1.3540 and ever so briefly above 1.3600 but didn’t manage to hold the latter figure for very long. In Germany, the Trade Balance improved to 15.6B in September, higher than the 15.1B expected, but unfortunately the encouraging figure failed to boost the euro, the single currency in fact declining following the positive data. Statistics released according to the Harmonized Index of Consumer Prices revealed that German inflation increased 1.4% in September as analysts had predicted, whilst the annual CPI did not change from the previous month. The eurozone this week awaits the release of the ZEW Economic Sentiment Survey on Tuesday 15thand the Core Consumer Price Index on Wednesday 16th.

In the United Kingdom, the Bank of England interest rate decision on October 10th revealed absolutely no change, with the interest rate remaining at 0.50% – the level it has been since 2009. In addition, the BoE Asset Purchase Facility, otherwise known as the country’s QE program, was also left intactremaining at 375 billion pounds. There has generally been no substantial change recorded neither in Governor Carney’s policy nor in the UK economy as a whole this month. Data released on Wednesday by the National Institute of Economic and Social Research indicated that the British economy expanded by 0.8% in Q3, thanks in large to the outstanding performance witnessed in the industrial sector over the past few months, despite the 1.1% drop recorded in August. This coming Tuesday, October 15th, the UK is holding its breath for key fundamental news such as the Core Consumer Price Index and the PPI Core Output. Wednesday the 16th is to reveal the Claimant Count Change, while the 17thof the month holds UK Retail Sales figures in store.

What has been called a ‘moderate recovery’ will continue in Japan according to the meeting minutes released last week by the country’s central bank, as it moves forward with the money market operations planned in order to increase Japan’s monetary base by 60-70 trillion yen a year and also with the buying of government bonds and ETFs. The Bank of Japan is also intent on using quantitative easing until Japan reaches the desired price stability target of 2%, as all measures decided on by the Bank of Japan always revolve around a much-longed-for end to over a decade of deflation. This week in the cards for Japan are the figures on foreign investment in Japanese stocks due out on Thursday 17th, and the much anticipated speech of Governor Kuroda on Friday 18th.

EUR/USD: the major currency pair appears to be calming down following its latest uptrend, with the next levels to watch out for being the support levels of 1.3640, 1.3726 and 1.3898, and the resistance levels of 1.3472,1.339 and 1.3304.