US session review: dollar rises after FOMC tapers an additional $10 bln

FOMC statement

Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters.

Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

EURO

German Consumer Confidence gauged by the Gfk Survey came in above estimates at 8.2 for the month of February (highest since Aug 2007).

Recent releases from the EMU showed the M3 Money Supply has decelerated during December, expanding at an annual pace of 1.0%, down from 1.5% and missing forecasts at 1.7%, while Private Loans contracted 2.3% on a yearly basis. 

EUR/USD fell to support at $1.3620. Breaking of this level would open the door to $1.3500. Below losses may widen to $1.3400 (Nov 21 lows). Initial resistance is at $1.3740. Above resistance comes at $1.3820 (Dec 30 highs). 

POUND

The pound could come under pressure today, as Governor Carney t reinforceв his desire to resist any pressure for an early rate hike.

According to Carney the pound has has an important effect on inflation;

BOE expects a more benign inflation environment;

Some real similarities between US and UK monetary policy stances;

BOE will provide further comments on forward guidance ;

Market has clearly taken in that 7% unemployment is not a trigger for higher rates.

Pace of UK consumption growth will slow

GBP/USD trades at $1.6560 with a strong resistance comes at $1.6660 (Friday’s high), extending to $1.6675/80 (channel line from Jan 10), then - at $1.6740/60. Minor support comes at $1.6470 (recent lows), below - near $1.6400.

YEN

Japan’s currency rose a bit after earlier decline before the Federal Reserve ends a two-day meeting amid forecasts it will reduce stimulus that has devalued the greenback. 

Japan’s Prime Minister Shinzo Abe told parliament today he expects the central bank to continue to implement “bold” easing. The Bank of Japan is buying about 7 trillion yen in domestic bonds each month to try and spur 2% inflation, helping the yen weaken 18% against the dollar last year.

USD/JPY consolidaes around Y102.20. Initial support comes at recent lows on Y101.90/80. Below losses may extend to Y101.10 (Nov 26 lows). Above session high acts as resistance around Y103.60.

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