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While the markets are still reading into the Fed’s QE tapering

Discussion in 'Current Market Sentiments' started by fx-recommends, Jan 31, 2014.

  1. fx-recommends

    fx-recommends Content Contributor

    Aug 6, 2008
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    Despite 2 cuts of the Fed’s QE to be $65b monthly, UST 10YR yield retreated to 2.68% this week after creeping above 3% with the end of last year and the beginning of this New Year.
    USDJPY visited the area below 102 for the first week since the beginning of last December after reaching its highest level since September 2008 also in the beginning of the year at 105.43.
    The gold could creep up to its previous resistance at 1279$ after this week Fed’s tapering decision which is its highest rate since finding support near 1180$ with the ending day of last year which watched losing more than a quarter of its value.
    As the tendency for unwinding risky positions amid anticipation of facing higher borrowing costs of the greenback with the Fed’s tapering could drive the investors to safer assets and the central banks to maintain its dollar reserve to hedge against these higher yields which can increase the demand back for US dollar and its backed securities to drive them to care much more for their reserve of it.
    The Fed could deliver to the market what can make it less volatile by what can be like a durability to follow a pace of incremental gradual tapering with this week new cut but the problems have been actually appeared on the surface with the markets reading of the Fed’s QE tapering impact on the emerging economies currencies taking a volatile unstable way after reading its impact on the greenback and the other main reserve currencies.
    The beginning came from Argentina to spread out in the global emerging markets as this country debt is always in check and its currency exposure to the FX markets is under strict rules drive the spread between the official market and the black market wider than the others.
    The central bank of Argentina has found itself compelled to ease these rules to stop losing more of its reserve for supporting its peso which is need for tighter spread between these 2 markets to bring back some of the lost confidence in its currency and to keep the capital inflows on.
    The weakest always falls first. It is something like the unsustainable Greece’s debt which caused the European debt crisis which has been triggered on the back of the global credit crisis.
    Amid these worries which could dominate the markets sentiment, similar EM Currencies have been negatively impacted by this wave and they were in need too to have the confidence in them back such as South Africa and Turkey which is suffering difficult political situation in this same time weighed further on the lira to be in need for quick support has been found this week with its central bank interest rate hiking by 4.25% to reach 12%.
    By God’s will, These monetary tightening steps can have direct influence raising the value of their currencies containing the underlined inflation expectations but these steps can build also deflation pressure on their struggling economies which can shrink later on the back of these steps, if they are not to be removed soon with restored confidence in these currencies while the main economies are facing actually deflation pressure can weigh on be these weaker economies as well.
    From another side and with this current market evaluation of the Fed tapering problems in proportion to these economies too, the worries about the Chinese growth pace have started gathering again with contraction of its manufacturing activity in Jan amid the same existing worries about its financial market with no seen permanent solution by PBOC but offering at the crisis time more liquidities to be injected into its money market like what it has started since the middle of last year for driving the Shibor rates down and this injection can be on the account of its reserves too anyway by God’s will.

    Kind Regards

    FX Market Strategist
    Walid Salah El Din
    Mob: +20 12 2465 9143
    E-Mail: mail@fx-recommends.com

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