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Currency market weekly review (March 17 - March 21, 2014)

March 24, 2014, Monday, 11:35 GMT | 08:35 EST | 17:05 IST | 19:35 SGT
Contributed by Forex-Metal

Euro: The currency received a portion of optimism on the background of fairly restrained reaction of the West to Russia's recognition of the Republic of Crimea. However, the macroeconomic statistics, ZEW economic sentiment index decrease to 51.3and performance of the indicator of expectations, which fell to 46.6 instead of planned 52 spoiled this optimism completely.

In details:

Monday: The Euro traded with little change against the dollar, which was associated with the release of weak data for the euro area and the United States. Traders ignored until the outcome of yesterday's referendum in the Crimea, as they were predictable. Now market participants' attention focused on the U.S. data, namely industrial production, which will soon be presented.

As for the report on the euro area, it showed that the growth of inflation in February slowed to 0.7% per annum after an increase of 0.8 % in January. This was stated in the final data of the Statistical Office. Analysts did not expect the revision of growth from previously reported 0.8%. Prices excluding the cost of fuel and food in the euro zone rose in February compared to February 2013 to 1 %, as predicted by experts. On a monthly basis, consumer prices in February rose 0.3 %, compared with a decline of 1.1% a month earlier.

Inflation in the 28 countries of the EU in annual terms slowed to 0.8% after 0.9 % in January. From the previous month, consumer prices rose by 0.3%. In February annualized deflation observed in Bulgaria (-2.1 % ), Cyprus (-1.3 %) , Greece (-0.9 % ), Croatia ( -0.2 %) , Portugal and Slovakia ( -0.1 %). The highest growth rate of consumer prices recorded in Malta and Finland (1.6%) and Austria (1.5%). Recall that the ECB's target level of less was than 2 %. In early November last year at a similar level, the ECB cut its inflation rate to a record low of 0.25 % to 0.5%. Meanwhile, U.S. data showed that the index of activity in the manufacturing sector of the Federal Reserve Bank of New York rose to 5.6 to 4.48, which was below the forecast of 6.6. The EUR / USD pair fell to $ 1.3875, but then recovered to $ 1.3912 during the European session.

Tuesday: The euro exchange rate rose sharply against the dollar, but could not resist the vicinity of achieved values, and fell to session lows. Initially influenced the course of trading weak data for the euro area and Germany, but active buying dips and words of Russian President Putin promoted a marked increase. Nevertheless, submitted after U.S. data brought back euro to previous levels. As for the data, they showed that the economic expectations for Germany deteriorated significantly in March, beating forecasts while most experts. It became known from the results of recent studies that were presented today by the Centre for European Economic Research ZEW. According to the index of economic confidence fell this month to the level of 46.6 points, compared with 55.7 points in February. Many experts expect that this figure will drop to 52.8. Meanwhile, we note that the index of the current economic situation has improved to 51.3 points from 50 a month earlier. Nevertheless, it remained below the expected level of 52 points. Also, the data showed that economic expectations in the euro area declined by 7 points - to 61.5 points. In contrast, the current economic situation indicator increased by 3.5 points - to 36.7 points.

Meanwhile, U.S. data showed that consumer price index rose by 0.1 % and building permits - to 1018 thousand units. The EUR / USD pair fell to $ 1.3890 during the European session.

Wednesday:  Euro traded slightly lower against the dollar today on the eve of publication of the two-day meeting of the Federal Open Market Committee, the Fed, followed by the first press conference Janet Yellen. It was expected that the Central Bank will continue to reduce the quantitative easing program. It should be noted in the last month, Fed Chairman Yellen has promised to continue to move in the direction of reduction of monetary stimulus. Positive economic statistics confirm this prediction. In addition, analysts expected the Fed's failure to target the unemployment rate, which is tied to the timing of rising interest rates. Most experts expected that the Central Bank may move to a new practice notice of plans to raise the base interest rate and determine further action by a number of macroeconomic indicators.

Little influenced by the data for the euro area, which showed that the seasonally adjusted construction output rose in January by 1.5 per cent (on a monthly basis), which is followed by growth of 1.3 percent in December and 0.1 percent drop in November. Experts predicted an increase of 1.8 percent. In annual terms, construction output rose by 8.8 percent in the beginning of the year, changing the downward trend, which was observed in recent months. The EUR / USD pair fell to $ 1.3915, after recovering slightly during the European session.

US Dollar: The dollar gained considerable support from the decision announced on Wednesday by the Fed 's monetary policy. At the FOMC meeting, it was decided to keep the pace rolling quantitative easing. U.S. regulator also abolished the landmark as unemployment, deciding to focus on a wide range of data, including the labor market, inflation and the situation on the financial markets. It was also noted that 13 of the 16 representatives of the Committee believe that the rate increase will occur in 2015.

In details:

Monday: The U.S. dollar lowered on a background of mixed American economic statistics. The survey revealed that the Fed - New York manufacturing index in the region rose slightly in March compared to the previous month. According to the data, the production index in March rose to 5.6 against 4.48 in February. Note the January value has not been revised. Economists expected the index to rise to the level of 6.6 points.

U.S. industrial production volume increased markedly in February, exceeding forecasts of experts with and fully compensate for the decline recorded in the previous month. This was reported by the Federal Reserve in its latest report. According to the data, seasonally adjusted industrial production increased by 0.6 % in February compared with the decline of 0.2% in the previous month (revised from -0.3 %). Capacity utilization rate, meanwhile, rose by 0.3 percentage points - to 78.8%. Economists forecast that industrial production increased by 0.2%, while capacity utilization was 78.7 %.

Data presented by the National Association of Home Builders , showed in the current month, U.S. builders continued to exercise caution in relation to the housing market , suggesting that problems with the restoration were associated not only with severe weather conditions . According to the report, the seasonally adjusted March housing market index rose by only 1 point, reaching 47 points. Values below 50 indicate that more builders assessed conditions as poor than good. Slight increase occurred after the fall of 10 points in February - the largest monthly decline in the history of this research. Many economists predicted that in March the index to rise to 50 points. Builders reported: complexity in the work was associated not only with the bad weather, but also problems with obtaining labor and land. Earlier pressure on the euro have data showing: February inflation slowed to 0.7% per annum after an increase of 0.8 % in January. This was stated in the final data of the Statistical Office. Analysts do not expect the revision of growth from previously reported 0.8%. Prices excluding the cost of fuel and food in the euro zone rose in February compared to February 2013 to 1 %, as predicted by experts. We also add that on a monthly basis, consumer prices in February rose 0.3 % compared with a decline of 1.1% a month earlier. Inflation in the 28 countries of the EU in annual terms slowed to 0.8% after 0.9 % in January.

Tuesday: Meanwhile, U.S. data showed that consumer prices have not changed in February, which is a sign of restrained inflationary pressures in the economy. According to the report, the February consumer price index rose a seasonally adjusted 0.1 % compared with the previous month. Basic prices, which exclude volatile categories, namely, the price of food and energy, also rose by 0.1%. Last significance was in line with economists' forecasts. Meanwhile, it was reported that consumer prices rose by 1.1% compared to February last year. It was the weakest annual growth since October. Also figure was below 2 per cent target by the Federal Reserve System. Basic prices, meanwhile, rose by 1.6 % compared to last year. Economists were expecting an increase of 1.2% and 1.6%, respectively.

At the same time, housing data indicate that adverse weather conditions seem to restrain the pace of housing starts in February, but the basic figures showed that the sector may be ready for spring rebound. This in his report informed the Ministry of Commerce. According to the data, bookmarks new homes in the U.S. fell last month by 0.2% to a seasonally adjusted annual rate reached 907 thousand slight deterioration occurred after construction fell by 11.2 % in January, although the rate for this month were revised upwards ( up to 910 thousand from 880 thousand ).

Wednesday:  The U.S. dollar rose sharply after the announcement of the Fed's decision to keep interest rate range for the federal funds unchanged and reduce the asset purchase program by 10 billion U.S. dollars. The Fed expected the unemployment rate is 6.1 % -6.3 % at the end of 2014, 5.6% -5.9 % at the end of 2015, 5.2% -5.6% at the end of 2016 and inflation reaching 1.5 % -1.6% in 2014, 1.5 % -2.0 % in 2015, 1.7 % -2.0 % in 2016.

Thursday: Dollar showed the most significant strengthening in the last seven months after the Federal Reserve yesterday hinted of a possible lifting of interest rates by the middle of next year. Following the meeting on March 18-19, the U.S. Federal Reserve has reduced its quantitative easing program by $ 10 billion for the third time in a row. Since April, the Central Bank will reduce the purchase US Treasuries from $ 35 billion to $ 30 billion a month, mortgage-backed securities - from $ 30 billion to $ 25 billion a month. In addition, the Central Bank has kept interest rate target range of 0% to 0.25% per annum. Some support the American currency was the labor market data. The Labor Department said: for the week ending March 15, the number of initial claims for unemployment benefits rose by 5,000 to a seasonally adjusted, while reaching 320 thousand Economists had expected the value of this ratio will rise to 327 thousand add the result for the previous week appeared unchanged. The U.S. dollar continued to strengthen against its competitors as investors take into account the possibility of raising interest rates earlier than expected before. Data released in the U.S. as a whole were positive. The index of leading U.S. economic indicators rose in February 2014 by 0.5 %, according to a research organization Conference Board, which calculates. Analysts on average had forecast a rise of 0.3%. According to revised data, in January index increased by 0.1 % rather than 0.3%, as previously reported.

The index of business activity in the district of Philadelphia also exceeded all forecasts. This figure soared in March to 9 points from minus 6.3 points in February, according to the Federal Reserve Bank (FRB) of Philadelphia. Analysts on average expect its growth to just 4.2 points.

The number of people who first applied for unemployment benefits, rose slightly last week, but was lower than predicted by most experts. The Labor Department said that for the week ending March 15, the number of initial claims for unemployment benefits rose by 5,000 to a seasonally adjusted; while reaching 320 thousand Economists had expected the value of this ratio will rise to 327 thousand also add that the result for the previous week appeared unchanged. Analyst Department of Labor said that there were no special factors that could have an impact on the overall result. Meanwhile, it was reported that more important indicator that “aligns " weekly volatility - the average number of calls in the last four weeks , down by 3.5 thousand to 327 thousand It was the lowest since the end of November.

Sales in the secondary market fell slightly in February, a sign of slow recovery. Experts noted that the decline was associated with unusually cold weather and deteriorating housing affordability. National Association of Realtors said that seasonally adjusted sales of existing homes fell in February by 0.4 % to an annual rate with 4.6 million units, and recorded six declines over the past seven months. Many analysts expected that sales will increase to 4.65 million from 4.62 million in January. We add that the figure for January has not been revised.

On the eve of the dollar rose by almost a percentage after Fed Chairman Janet Iellen at the press conference suggested that a rate hike may take place within six months after the central bank to terminate the bond buyback program. Rising interest rates may increase the investment attractiveness of the currency.

The Fed announced a reduction in the monthly volume of redemption of bonds at 10 billion dollars, and changed the conditions under which interest rates will remain low. The threshold level of unemployment has been canceled. Dollar rally corresponded with increase of yield on 10-year bonds. The dollar index rose from 80.03 to 80.20.

British Pound: The Pound showed a negative trend. In addition to the common factors that put pressure on risky assets were their own reasons for disappointment. Earlier this week, dropping pounds was due to corporate transactions (there confirmation of the transaction by buying Vodafone Spanish company). In addition, it was reported that the UK’s budget deficit widened. And then even good data on the labor market, reflecting the reduction in the number of unemployed, were unable to turn the tide.

In details:

Tuesday: Pound weakened significantly against the U.S. dollar, updating intraday lows below $ 1.6600. Many market participants were waiting for speech of the Bank of England Governor Mark Carney. Next report will be a key labor market indicator, the report and the Bank of England meeting FOMC. The GBP / USD pair fell to $ 1.6575 during the European session.

Wednesday:  Pound was up against the U.S. dollar, which was associated with the publication of minutes of meetings of the Bank of England and labor market data. Note Minutes of the last meeting of the Bank of England from March 5-6 showed: CB members were unanimous in their decision to maintain the status quo, leaving the rate at around 0.5%, and the size of its asset purchase program - at ? 375 billion MPC members noted: three months to December employment growth slowed slightly in Britain and the unemployment rate remained above the 7% mark target designated by the Bank in the past year. MPC members stressed that the recent appreciation of sterling puts downward pressure on inflation.

Meanwhile, the data showed that the unemployment rate for three months (December) compared with the previous three-month period remained unchanged - at 7.2 %, confirming the predictions of many experts. The number of applications for unemployment benefits fell by 34.6 million in February after falling 33.9 thousand the previous month ( revised from -27.6 million). Experts had expected a decline will be only 23.3 thousand. Furthermore, the level of applications for employment of unemployed fell in February to 3.5% from 3.6 % in January, showing the 16th consecutive monthly decline. The number of people in employment has reached a new record high - a little less than 30.2 million, driven by growth in self-employment. The GBP / USD pair rose to $ 1.6642 during the European session.

Japanese Yen: Unlike the Fed, the Bank of Japan did not say anything interesting. That by the end of the week the pair still rolled the district level of 102.30, explained the impending completion of the fiscal year, which is traditionally characterized by demand for the Yen by national companies.

In details:

Monday: The yen has fallen markedly against the U.S. dollar. This is due to Kuroda statement on the possible extension of the leniency program. According to him, the Bank of Japan should be ready to apply measures of monetary policy easing in the event of any hint of problems in achieving the inflation target due to the economic downturn. He also noted that consideration of further measures will be made at an early stage - depending on how the economy will react by increasing the tax rate on consumption. The CB Head Kuroda said with confidence that the increased sales tax in April will not have a significant negative impact on the economy. He explained also that the record level measures easing monetary policy, begun in April 2013, has been applied with the assumption that the consumption tax rate should eventually reach 10%. Kuroda said hardly consumption will be significantly reduced. The USD / JPY pair rose to Y101.85 during the European session.

Tuesday: The yen was trading with a noticeable increase against the U.S. dollar. Markets continued to play up the theme of the Crimea, and according to recent reports, Russian President Vladimir Putin signed a decree recognizing the Republic of Crimea as a sovereign and independent state, which created prerequisites for joining the peninsula to Russia. In light of the current situation, the EU and the United States imposed sanctions against certain officials of Russia and Ukraine, the number reached 21 people. According to Europe and America, these people are guilty of infringing on the sovereignty of Ukraine. In this list of Russian President Vladimir Putin did not hit, although it is expected the introduction of further sanctions in the event of further intervention by Russia. Markets remained relatively calm and safe-haven rally stopped. In general, the market situation in the Crimea scenario assumes preservation “wait and see." The USD / JPY pair dropped to Y101.30 during the European session

Wednesday: The yen fell against the U.S. dollar. Impact on the dynamics of the data provided by Japan, as well as words BOJ board member Takahide Kiut. Report submitted to the Ministry of Finance of Japan, has shown that the trade deficit declined in February to a level of 800.3 billion yen, compared with 2.8 trillion Yen in January. Deficit reduction occurred on the background of accelerating export growth and weakening imports. However, experts expected further reduction - up to 600 billion yen. Add captures Japan’s trade deficit for 20 consecutive months (the longest period since 1979). Meanwhile, import growth slowed in the country in February to 9% from 25.1 % in January, as export growth accelerated to 9.8% from 9.5%.

With regard to the Kiut, he warned that if the Central Bank will forever campaign to mitigate the monetary policy or to undertake additional mitigation measures, it can give rise to adverse effects on the markets. The USD / JPY pair rose to Y101.70, but then declined during the European session.

Canadian Dollar: The Canadian dollar fell after comments from Bank of Canada Governor Steven runners pointed out the potential weakness of the Canadian economy in the first quarter of this year. Runner said that lag in real output in the economy from potential is unlikely to be closed for several years. Runner also noted that inflation in February was probably as weak GDP growth in the first quarter. Even so, he expects GDP growth this year and next above trend.

Canadian dollar remained under pressure after yesterdays deep comments of Mr. Poloz. Governor of the Bank of Canada said it did not exclude the option to lower rates, even though at the moment the Central Bank and is heading to (openly expressed) mitigation. He added that in the 1st quarter of the Canadian economy can demonstrate rather weak indicators (mainly due to weather conditions) under conditions of slow growth, low interest rates and a decline in consumer prices for the target mark of Bank of 2%.

Australian dollar: Australian dollar strengthened against the U.S. currency, despite the increased geopolitical risks associated with the Crimea, who last weekend called for the annexation to Russia. More than 93 % of Crimeans voted to become part of the Russian Federation, according to preliminary results of the referendum, which raises the likelihood of acute confrontation between East and West.

U.S. and European Union quickly denounced the referendum, calling it illegal. U.S. President Barack Obama in a telephone conversation with Russian President Vladimir Putin said the vote was held “under duress and threat of Russian military intervention " and will not be acknowledged . Attention will now be focused on sanctions against Russia from the West, and how Russia will react to this. Traders were expected that the strong Australian dollar exchange rate was partly the result of rising expectations that the central bank will raise interest rates at its next meeting.

Swiss Franc: Swiss franc has fallen markedly against the dollar, which was due to yesterday's Fed decision, and today's announcement SNB. Note, the Swiss National Bank confirmed its intention to intervene in currency markets to prevent the strengthening of the franc. SNB also upheld the 3 -month interest rate range LIBOR 0, 0% -0, 25%, that is fixed by 11 consecutive months. Decision was consistent with economists' expectations. Bank noted the continuing high franc, and the restriction for EUR / CHF continues to be an essential tool to avoid undesirable tightening of monetary conditions in the event of renewed upward pressure on the Swiss franc. SNB also said it expects GDP growth in 2014 of around 2 %. Meanwhile, it became known about lowering the inflation outlook to 0.0 % in 2014 from 0.2% previously. Inflation forecast for 2015 was 0.4 %, compared with 0.6 % previously.