The Current Market Sentiment‏

With the current split between having tapering decision by the Fed tomorrow or not, there is awaited USD reaction to come as the current discounting shows nearly 50% chance of tapering following series of good economic data pushed the market optimism of having solider US economic growing pace next year by God’s will, after it had grown in third quarter by 3.6% from 2.8% in the preliminary reading from 2.5% in Q2 and 1.1% in Q1.

While the continued easing of the prices pressure in US which has been highlighted recently by another falling of Oct PCE to 0.7% y/y from 0.9% in September and 1.2% in August can make the Fed in no rush to taper and give it also enough time to wait for the political debate results about the debt ceiling hiking which should be ended by 7th of next Feb by God’s will.

On 18th of last September meeting decision of keeping the Fed’s QE unchanged at $85b since 12th of December 2012, you can find out easily that EURUSD rose nearly from 1.336 to 1.354 in few hours and the market prospects of having cutting of this monthly scale of buying were lower than what they are currently.

EURUSD has been stuck trading between 1.37 and 1.38 in the days after the release of Nov US labor report on 6th of this month which has shown falling of the unemployment rate to 7% which is the lowest level since November 2008 and also another month of adding more than 200k jobs out of the farming sector.

Since that date the market sentiment has been nearly totally possessed by the growing expectations of having tapering decision tomorrow by the Fed with no clear clue from the Fed’s governors’ talks which came later following these data to resolve this issue but reference to existing opportunity of tapering this month could push up UST 10YR yields to get closer to 2.90% again between before tomorrow decision.

The Fed’s officers could not say that the economy in a soft patch or there is no what can tell that the economy is growing in a reliable pace after several months of having both of ISM manufacturing and non-manufacturing are running in the expansion territory easily with no surprising downwards and also with the housing market unchanged momentum of improving which continued during this year beside the labor market performance which has shown unfazing of the governmental partial shutdown.

So, It is now only mainly the inflation easing power what could be really hanged on, in the case of holding the QE unchanged again and there can be highlighting of that in the Fed’s economic assessment and projection tomorrow by lowering the inflation outlook and raising the growth expectations of the Fed beside the usual Fed’s calls for the congress for reaching political solution for the debt ceiling issue and the budget for restoring confidence with the minimal possible negative impacts on the economy.

From the other side the single currency is still exposed to more easing measures by the ECB which decided last month to lower the refinancing interest rate by 0.25% to 0.25% and kept it unchanged in the meeting of this month smoothing the way to the market for having low inflation rates over the medium term well below the 2% HICP ECB yearly target waiting for more deflation pressure to move again.

The single currency is trading now versus the greenback around 1.375 maintaining what it could gain after creeping up from 1.3292 which has been reached on 7th of last month following the ECB’s decision of cutting the refinancing interest rate by 0.25% and God willing in the case of rising further it is expected to face resistance again at the 61.8% Fibonacci correction level of the falling from 1.4938 to 1.2042 at 1.3834 which could hold the pair back last October while getting over it can be followed by another resisting level at 1.3866 before 1.40 psychological level while the pair which is still over its 200 hourly moving average can meet in the case of retreating again intermediate supporting levels have been initiated during its recent creeping up at 1.3707, 1.3620, 1.3523, 1.3397 before its recent formed bottom at 1.3294 again while the expected standing supporting levels below it are still existing at 1.3229, 1.3104 before 1.30 psychological level.

So, the single currency stance can tell also about this current stance of the markets as it is still exposed to a lower high formation to come below 1.3834 and it can also gain more momentum of rising in the case of breaking it out.