16.12.201312:47 Forex Analysis & Reviews: Fundamental review of FOREX for December 16, 2013

EUR/USD, GBP/USD.

Last day of the previous week was weak, the investors continued to prepare for the QE3 trimming. However, slowing down inflation in November (Producer Prices dropped 0.1%) gave reasons to doubt the reasonability to cut during the next meeting. However, there is a peculiarity in it. The Fed takes into account Core PPI (excluding food and energy), it rose 0.1%, though it declined from 1.4% up to 1.3% (y-o-y). However, besides PPI prices the whole level of inflation is also influenced by Consumer Price Index, which is published on Wednesday and it is expected to rise (1.3% vs. 1.0 (y-o-y)).

The British pound lost 53 points. Probably, additional pressure on the investors was provided by argue between George Osborne, Chancellor of the Exchequer, and Mark Carney, Governor of the Bank of England, about the overheated real estate market.

Today at 15:00 UTC+4 data on PMI Manufacturing and PMI Services in the eurozone in December in the first estimate is published; expectations are positive. However, before it 12:30 UTC+4 PMI Manufacturing index in Germany is revealed, forecast 53.1 vs. 52.7 in November. Services PMI in the Eurozone (13:00 UTC+4) is expected to be 51.5 vs. 51.2; Manufacturing PMI is expected to be 51.9 vs. 51.6.

At 14:00 UTC+4 data on Trade Balance in the Eurozone in October is revealed; forecast 15.2 billion euros vs. 14.3 billion euros in September.

At 18:00 UTC+4 the ECB President Mario Draghi speaks.

In the US all the published indices are expected to be strong; Empire State Manufacturing Index (18:00 UTC+4) in December is expected to be 4.75 vs. -2.21 in November. Data on Industrial Production is expected to be 0.5% vs. -0.1% in October. Capacity Utilization is expected to be 78.4% vs. 78.1% in October.

There are a lot of events for Monday. It is very convenient for the investors trying to fix profit before the Fed’s meeting. Tomorrow December tree-month futures (EUR, GBP, AUD, JPY, and CHF) are to be closed and March ones are to be open, which may introduce increased volatility. We expect sideways movement with possible spikes in both sides. 

USD/JPY.

This morning data on Japan Tankan indices were better than expected. Tankan Manufacturing in the fourth quarter was 16 vs. expectations for 16. Tankan Non-Manufacturing grew up to 20 vs. forecast for 16. On the contrary, Nikkei225 dropped 0.8%, which is connected to a new government budget plan for 2014 (adopted on December 24), which contains issuance of government bonds for 180 trillion yen ($1.72 trillion). Meanwhile, 120 trillion yen is planned for the prolongation of the current debts for 1,011 trillion yen. The Ministry of Finance plans to increase emission of 20 and 30-year bonds, imitation the actions of the US.

The Ministry of Finance also stated that in the medium term it increases the rate. Thus, the debt burden will increase. The corporate sector has sharply increased the emission of its own debt from early December. During the first week of the month, 20 major Japanese companies issued bonds for 300 billion yen.

Nevertheless, the fact of government and corporate debt has to be formed into investment idea. Primarily, the market has to react on the outcome of the Fed’s meeting, which is scheduled on December 18. In this regard the zone of uncertainty is widened in both sides; 102.15-104.20 are virtually out of the market.