A couple of days ago, Janet Yellen, new Chair of the Board of Governors of the Federal Reserve System, finally made a speech in the US Senate. Millions of traders, investors and financial experts had looked forward to this event only to hear that QE tapering will continue at the same rate (with possible changes) while interest trades remain ultra-low for months.
At the same time, the economic stats coming from the USA are far from reassuring traders and investors. At this point, cold winter is to be blamed for lower consumption (that accounts for 70% of the US GDP). Want if economic figures for QE 2014 turn out to be as poor as this quarter? What will the Fed do in this case?
As you know, QE3 has been tapered since December 2013. In January 2014, the Fed decided to taper the bond purchases by $10bn/m more. At this point, QE3 is down to $65bn a month. Indeed, the US economy is showing signs of growth, though they are weak. In Q4 2013, the US economy gained 2,4% while the rate of unemployment dropped by 1% down to 6,6%. It turns out that QE is brining fruit and can be tapered gradually.
Still, the extra liquidity caused all the 3 rounds of QE seems to be a problem. This liquidity is inflating another price bubble in financial markets. While Standard&Poor 500 gained 20% in 12 months, consumer spending per capita gained only 2%, which is the first wake-up call. It turns out that the economy is growing due to excessive money supply pumped into the US stock market rather than following the real economy (since there is no real economic growth).
This leads us to believe that this excessive liquidity will have to be eliminated by tough monetary policy and financial regulation.
Still, investors and traders were focused on Janet Yellen's plan B. She said that in the tapering may be suspended if the US economic recovery is under threat. For example, the US consumer inflation rate reached only 1,5% while the Fed's target was 2%. In general, macroeconomic figures turned out to be weaker than expected. The question is whether this tendency is a temporary phenomenon or a steady trend? As or Janet Yellen, she thinks this is a temporary slowdown caused by extremely cold winter that hindered consumption.
Anyway, this remains to be seen in the months to come.
Masterforex-V Academy: USD Index Outlook
According to the trading experts working for Masterforex-V Academy, there is a correction going on against a bullish momentum of level Daily2-3. It started from 81,395 and is currently around 79,300. This is wave B of the same wave level. It has 2 waves formed inside:
А D1 ( 81,395 - 79,925) and В D1 (79,925 - 80,560). The high formed by wave B is a new starting point. There is wave а(С)/С D1 going down from it. The entire wave count of level D1 is defended by the sloping channel built through 81,395 and 80,560.
In mid-term perspective, the price has already formed wave А Н1 80,560 - 80,215, В Н1 80,295 and completed wave С Н1 80,295 - 79,660. The reference point is the low of wave Н1 79,660.
The current levels of support are determined by the Fibo grid built on top of the 80,295 - 79,660 range.
In order to resume the upward tendency, the price will have to break and consolidate above the sloping channel built through 80,560/80,295, followed by a full-fledged FZR.
