FUNDAMENTAL ANALYSIS
done a good job. Added to that is the new tailwind provided by new technologies in power generation and manufacturing. The
move
towards oil independence is a powerful support to the currency over of the long term.
However, it is the combined possibilities of an end to the Go v ernment impasses and a beginning of the end of quanti t a ti v e easing which will have the most sig n ific a n t impact on the currency in the short term. A deal was done in Washington in December, the Go v ernment is funded until mi d- Januar y and the debt ceiling until early February. This is hardly a robust scenario given their track record but there appears to be a genuine desire to avoid the recent ludicrous debt ceiling and budget debates that can so destabilise confidence. We have no idea
Given at
this stage whether the Democrats and GOP can craft a grand bargain between now and early next year
Only a month ago, after the
Chairman Bernanke’s September press conference after the FOMC
but chances are much greater that they will try, both from political necessity and economic reality.
FX
will be added to the committee at the start of 2014.
Whilst the US Dollar has not always weakened when the Fed has been printing, periods of strength in the currency have generally occurred when expectations were rising that the Fed was at least c ontempl a t ing an
exit This likely
strategy. also
coincided with some sort of better economic data.
that the Japanese remain fully committed to
authorities “Abenomics”
we have put together a strong case for a dramatically weaker currency over time
meeting, it was easy to imagine the Fed maintaining quantitative easing at US$85 billion per month for longer. Since then, the economic and
especially the employment
data has proved strong enough to suggest a taper is imminent, if not in December then early in 2014. This conclusion is boosted by the fact that more hawkish voting members
money at the right
We should conclude by pointing out that many investors have regretted believing in the powers of Japanese authorities to implement their policies in the past and, for that matter, many investors have regretted assuming the US will stop printing time. Having
said that, there seems to be a real opportunity in the potential for Dollar/Yen to strengthen in the coming quarters.
Stewart Richardson
Follow Stewart Richardson’s updates on RMG Investment Blog
FX TRADER MAGAZINE January - March 2014 15
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