Janet Yellen’s first public speech as the new chair of the Federal Reserve provoked panic in financial markets. Despite the fact that she told the audience expected things, Janet Yellen did make some ambiguous statements about the Fed’s plans concerning interest rates.
Yellen’s slip of the tongue or deliberate provocation?
In particular, Janet Yellen said that the Fed was going to continue tapering QE3 (the purchases were cut to $55bn a month). Still, when asked about interest rate hikes, she hinted that the rates may well be raised in 6 months. If to consider the fact that the Fed previously promised to keep interest rates low for a long period, 6 months can hardly be treated as long-term perspective.
It should be noted that the Fed has been keeping the benchmark interest rate at 0,25% a year since October 2008. Still, if to take into account Yellen’s hint, we may well expect that the interest rate may be raised up to 1% by late 2015. So, the market reaction was quite logical. Stock indices declined right after the speech. At the same time, 10-year bond yields increased by nearly 1%. In general, the very tapering of QE3 scared investors, which reflected in stock markets rapidly losing their capitalization.
Yellen made bond investors even more nervous. The situation has been ambiguous and uncertain for a long time, which certainly makes investors sensitive about any (even minor) changes in the Fed’s policies. Still, this hint does sound ambiguous. While some experts say this is just a slip of the tongue caused by a lack of experience, others treat it as a hidden message that interest rate hikes may really take place in 6 months.
Meanwhile, such a sudden and rapid pace of QE tapering affected not only US and European markets, but emerging markets as well. The Russia stock market (amid tough relations with Ukraine and Western sanctions) also witnessed nervous investors, thereby responding with a decline.
Now let’s consider the reaction of currencies and their near-term prospects.
According to Masterforex-V Academy, the US Dollar is likely to remain strong due to the Fed’s tapering. The US Dollar is less dependent on commodity prices that some other majors. That is why it may well consolidate its position further. Some experts say that the common European currency may well stay strong as well for the same reasons. Still, in this case, the predictions are not that straightforward. Today’s common currency is less stable and depends on much more controversial factors than its American counterpart.
Still, some experts assume that the current position of the US Dollar is also vulnerable, especially if to consider the fact that the US economy ended 2013 weaker than expected - 2,6% against preliminary figures (3,2%) and rather reserved expectations (2,7%).
On top of that, the major rivals of the US Dollar are even more vulnerable, which allows the American currency to gain some relative strength, thereby making up for the consequences of the Fed’s QE tapering.
That is why Forex experts recommend monitoring the US Dollar. When it goes down to such measures, this means that the Fed and US politicians are seriously concerned about the US Dollar.
EURUSD prospects.
According to the recent analysis of EURUSD H4 conducted by Masterforex-V Academy, the currency pair made a local low at 1.3704 on Friday after pinning through the defensive MF pivot at 1.3709. Then EURUSD rebounded from the bottom and ended the trading week at 1.3772. Thereby, the currency pair went back inside the 1.3748-1.3875 range.
Yesterday, EURUSD gained some value and then started consolidating above the bottom of the range.
At this point, the closest level of resistance is 1.3843 (MF pivot + FIBO 76.4%-50%).
In order to resume the downswing, the currency pair will have to break and consolidate below 1.3748 and to break the mentioned local low at 1.3704 as confirmation., Masterforex-V Academy reports.
At this point, the mid-term bias is bearish. The tendency started on March 13th . The closest level of support is located at 1.3644(73) – a cluster of FIBO levels (138.2% + 38.2% + the bottom of the MF sloping channel). There is one more level below the mentioned one. IT is located at 1.3598. A break below them will give way to futher lows.
