January 13 2013

OVERVIEW

American indices closed the first week of the New Year with a record growth in recent 13 months after reaching the agreement between republicans and democrats, that enables the US to avoid falling from the Fiscal Cliff. Further stimulating threatens the trust to the FRS by American banks and citizens. The thing is that the efforts of the Federal Reserve System in stimulating the economy by big purchases of bonds will test the limits of trust to the FRS. In opinion of Jeffrey Lacker, the president of FRB (Federal Reserve Bank) of Richmond, this might increase the risk of inflation growth next year. He claims that there are real risks of inflation increase in 2014 further on with taking to account current trajectory of monetary and credit policy. The concern of Lacker follows the FRS decision in December about the beginning of pumping a big volume of money into the financial system against the background of new bonds’ purchase. Authorities also made an obligation to save the short term rate around 0% till the level of unemployment falls to 6.5%. The forecasts on inflation remain around the goal of 2%. The efforts are supposed to lower the long term rates in order to encourage borrowings, expenditures, and investing. Lacker said that further stimulus is not likely to increase the pace of economic growth, which is forecasted at the level around 2% this year. He also expects the inflation in 2013 to compose a bit less than 2%, which is not far from the goal level of the FRS. If FRS doesn’t act quickly enough, than inflation might turn into a threat. The economy of the UK in 2013 awaits a modest recovery according to an opinion of the majority of the analyst worldwide. As for the EU GDP, no surprises are expected in the final revision. Anyway hope for positive news in Europe is insignificant. The debt crisis is not overcome, credit crisis is exacerbating, and the recession is out there…

The Euro was depreciating against the US Dollar last week from 1.3279 to 1.3077 with subsequent bounce to 1.3044. At the moment financial markets are quite concerned by the state of economy of Germany, France, Italy, and Spain. All this doesn’t add any positive sentiment to anticipations of the market and doesn’t arouse any interest to risky assets.  The debt crisis obviously won’t disappear and will remain as a negative factor. Looks like the EU authorities are just trying to ignore it, though of course it won’t help to solve the problem.  Technically the key support is near 1.3000.

The new year of 2013 brought to the currency almost all of its past volatility. Last week the US Dollar grew against the Yen from 85.81 to 88.40 with further dip to 87.79. Analysts assume that this is only a correction, after which the Yen will continue to give up its positions to the US Dollar. The resignation of Shinzo Abe in Japan most probably will be a trigger of further weakening of Japan monetary policy. Levels above 92 today look like an unrealizable dream. From technical point of view such a turn of events might mean the reverse of the trend from bearish to bullish one.

Last week the Pound was depreciating against the US Dollar from 1.6315 to 1.5992 with further rise to 1.6016. The modest recovery of British economy forecasted by analysts won’t’ help the Pound, and it will most likely go under the sales’ pressure because of aggressive sales’ in December 2012.