The main events in the Foreign Exchange market are expected at the end of the week


Good day dear traders. Let us review the major economic events of the past week. The US dollar index continued rising last week. As expected, the Fed announced the completion of its monetary expansion program QE3 on Wednesday. In practical terms this means the Fed stopped printing new dollars. According to the recent Fed statement, the US economy is on track for recovery. The foreign exchange markets got some good news on Thursday. The US gross domestic product grew at an annual rate of 3.5 percent in the third quarter of 2014.

This is significantly higher than the expected growth of 3%. In our opinion, this happened mainly due to reduced imports and, consequently, lower trade deficit. The shale oil extraction in the United States expanded sharply, resulting in reduced demand for traditional oil in the world market. Note that the US natural gas price is almost three times lower than in Europe, and five times lower than in Japan. It lowers the US production costs. So positive trends in foreign trade added 1.3% to the US GDP growth and another 0.7% were provided by increased government spending, mainly on defense.

Thus, the tense political situation in Syria, Iraq and Ukraine is also good for the US economy. Currently, most investors expect the US GDP in 2014 to grow 2.5 to 3%, and the first Fed rate hike to occur in October 2015. Although in our opinion the US economic data released on Friday were neutral, the US dollar kept growing. Note that amid the positive US economic data, the economic statistics from EU looked rather weak.

The ECB officials did not reveal fully the plans for monetary policy easing. Meanwhile the inflation rate in Eurozone fell in October; which increases the deflation risk and weakens the euro under current conditions.

The major macroeconomic events of the current week are planned to take place at the end of the week. On Thursday the ECB meeting will take place, and what is more important the ECB President Mario Draghi will hold a press conference afterwards. Investors hope that he will reveal the plans regarding the timing and the volumes of the ECB bond purchasing program. Key data on the US labor market will be released on Friday. The Fed officials are expected to give speeches the same day, including the Fed Chair Janet Yellen. We assume that the tentative outlook is positive for the US dollar. This was all for the week, see you next week.

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