A fork in the road for the Fed. Fundamental analysis for 29.12.2014
29.12.2014
The key event of last week was very positive data on US GDP that showed growth of 5% for the III quarter, which was the best growth in the last decade. The driver for recovery has been the growth of consumer spending, which can be attributed to improvements in the labour market. Moreover, due to lower energy prices data for the IV quarter may also be strong.
However, it should be noted that it is unlikely that at the end of this year, the growth rate of the data will be saved, because there is some "roll back" on a number of macroeconomic indicators. First of all, we are talking about the drop in orders for durable goods, as well as that, over the last three months there was a downturn in the real estate market. In addition, income growth was also substantially below the levels that would allow us to speak about the return of a stable basis for economic growth.
Such high rates of GDP growth once again give rise to a new wave of talk about the possibility of a rate hike by the Fed in early 2015. I will remind that at the present time there is a feeling in the markets that the first rate increase may occur in the middle of the year, based on forecasts regarding the Fed's own policies. And here the data on the IV quarter, without exaggeration, will be crucial.
The fact is that the probability of a slowdown remains significant, and here we must pay attention to the current situation in the British economy. After a fairly successful launch of the asset purchase program, the United Kingdom GDP showed solid growth rates that were the envy of all of continental Europe. However, the latest statistics show a slowdown, and the dynamics of GDP in the III quarter has now been reduced from the original 3% to 2.6%.
Accordingly, if such dynamics will come to the US, it would be extremely difficult for the Federal Reserve to raise rates even in the expected time frame, which does not exclude adjustments of current forecasts of the regulator. If you recall the recent history, the deadlines of QE3 also shifted under the influence of emerging statistics. Therefore, if the current uncertainty will persist, then the current bearish trade on the Eurodollar will also remain relevant.
I still hold all the transactions for sale. At the local correction I opened an additional short. It is possible that on the background of the Greek elections the pair will continue to decline, although the background events can hardly expect any significant movement. It is likely that the bears will move the pair to new lows after the holidays.
RoboForex Analytical Department
However, it should be noted that it is unlikely that at the end of this year, the growth rate of the data will be saved, because there is some "roll back" on a number of macroeconomic indicators. First of all, we are talking about the drop in orders for durable goods, as well as that, over the last three months there was a downturn in the real estate market. In addition, income growth was also substantially below the levels that would allow us to speak about the return of a stable basis for economic growth.
Such high rates of GDP growth once again give rise to a new wave of talk about the possibility of a rate hike by the Fed in early 2015. I will remind that at the present time there is a feeling in the markets that the first rate increase may occur in the middle of the year, based on forecasts regarding the Fed's own policies. And here the data on the IV quarter, without exaggeration, will be crucial.
The fact is that the probability of a slowdown remains significant, and here we must pay attention to the current situation in the British economy. After a fairly successful launch of the asset purchase program, the United Kingdom GDP showed solid growth rates that were the envy of all of continental Europe. However, the latest statistics show a slowdown, and the dynamics of GDP in the III quarter has now been reduced from the original 3% to 2.6%.
Accordingly, if such dynamics will come to the US, it would be extremely difficult for the Federal Reserve to raise rates even in the expected time frame, which does not exclude adjustments of current forecasts of the regulator. If you recall the recent history, the deadlines of QE3 also shifted under the influence of emerging statistics. Therefore, if the current uncertainty will persist, then the current bearish trade on the Eurodollar will also remain relevant.
I still hold all the transactions for sale. At the local correction I opened an additional short. It is possible that on the background of the Greek elections the pair will continue to decline, although the background events can hardly expect any significant movement. It is likely that the bears will move the pair to new lows after the holidays.
RoboForex Analytical Department
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Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.