Major Currencies Consolidate After Volatile Thursday, China’s GDP Eyed - 12.7.2013

The currency markets stabilized following lots of shaking after Ben Bernanke’s comments on monetary policy. The US dollar index retraced from recent bottom at 82.23 and now is consolidating around 82.76, that is likely to continue until Friday evening where US PPI and University of Michigan Consumer Sentiment would be released. Looking at the equities, S&P 500 on Thursday advanced by 1.36% to 1675 which is a new record peak, Dow Jones surged by 1.11% also rising to new high. Risk appetite improvement by Bernanke’s dovish tone in its latest press conference, as he mainly said since inflation is below target and unemployment is still above threshold of 6.5% the bond buying program would continue for the “foreseeable” future, that have underpinned equities. In addition later on today FOMC member Bullard speaks, he argued previously in the year that QE should increase only if economy deteriorates and inflation drops, adding, currenty that is not the case, sounding more hawkish rather than dovish.

Other major currencies performance against the greenback is in steady state for the moment, like EURUSD is balanced around 1.3080 ahead of Industrial Production index to be released later on. Monetary policy for the ECB in the longer term is likely to get more aggressive. Euro zone is at recession with no recovery indication coupled by Draghi’s comments that key rate would remain at present or lower levels. On the contrary of FED policy that would remain at current level and from September likely to see some comments about asset tapering. Due to that, EURUSD would remain under pressure in the longer term and we consider downward development more probable than otherwise.

Elsewhere, we couldn’t observe any clear intraday bias for today’s trading activity, the USDJPY is as well in consolidation mood around 99.00, with Kuroda saying that is ready to take further steps to counter fight challenges in the economy. The Aussie versus greenback was little more changed but still in a tight range between 0.9187/09156 after profit taking by short traders. Looking ahead, early on Monday morning National Bureau of China Statistics would release quarterly GDP data and that is expected to have a broad impact on markets, previous figure was at 7.7% negatively surprising markets, lowering risk appetite.