Monday, September 23rd, 2013

Fed's maintained its the current pace of asset purchases unchanged sending Dollar
index to seven month low of 80.06 and other riskier assets higher..

Euro was trading above 1.3500 psychological levels after the FOMC verdict further
pushed it to a weekly high of 1.3569. The Zew data also came out more positive than
expected.

The pound surged to 8 months high on optimistic economic outlook. The focus of this
week is the final reading of Q2 GDP.

Trade balance and the retail sales are major data releases out of New Zealand and
Canada respectively. No Major data release for Australia.

British Pound

Sentiment: Positive

Last week: O 1.5936 H 1.6163 L 1.5886 C 1.6003

Expected range: 1.5700 1.6400

The Sterling gained momentum in the previous week rising to 8-months high against the dollar.
Although, US FOMC Meet was the epicenter of the focus in the previous week, the BoE released
the minutes of its Sept. 3-4 policy meeting. The pair gained further boost with positive sets of
economic data releases which indicates that the British economy is turning the corner and is on
the path of sustained recovery. The Sterling started the week on a negative note since investors
stayed on the edge ahead of the uncertainty of Fed meet. Investors also remained vulnerable to
the inflation data released on Tuesday. Data released showed that CPI fell to 2.7% in the year to
August, from 2.8% in July, well above the BoE target of 2%. But the Feds surprise decision on
Wednesday of not to taper its asset purchases program, caught financial markets off guard, as
investors were almost universally expecting the Fed to start reining in its QE program. The Feds
decision reversed risk sentiments across the board thus raising the demand for riskier assets.
Pound rallied to 8-month high of 1.6163, further supported by the minutes released by BoE. The
minutes revealed the Monetary Policy Committee (MPC) voted 9-0 to keep its main policy rate
unchanged at 0.50 percent and the size of its asset purchase program unchanged at 375 billion
The unanimous decision to keep policy unchanged came as little surprise due to some recent
signs of resilience in the British economy. The pair pared some of its gains on Thursday as
weaker Retail Sales data weighed on the pair. Retail sales unexpectedly fell 0.9 percent in August
relative to the previous month, against an expected rise by 0.4%. Markets ignored the positive
CBI industrial order expectations survey which showed that UKs manufacturing sector
continued to pick up for the fifth consecutive month with a reading 9.0 in September, surpassing
market expectation for a rise to 2.0. The pair further came under pressure on Friday as US Fiscal
concerns spared dollar demand despite the better than expected public sector net borrowing
data in UK.
The BoE minutes showed an unanimous decision to keep the policy rate as well as asset purchase
program unchanged. The recent data releases have been hinting towards continued
improvement in the economy and this has lead the BoE to revise its projection of Q3 GDP
growth to 0.7 percent (not annualized) from 0.5 percent. The signs of stronger growth,
accompanied with persistently higher inflation which has been above the BoE target of 2%, will
reduce the inclination of BoE to ease monetary policy further in the foreseeable future. Neither
the MPC is likely adopt a more restrictive policy since the economic data are not good enough to
suggest strong growth. The policy stance of BoE will be dependent on the future inflation,
growth and unemployment data, which at present suggest that BoE is likely to maintain its main
policy rate at 0.50 percent until 2015.

Commodity Currencies (AUD/NZD/CAD) Sentiment: Neutral

The pair started the week on a positive note but gradually gave away gains as US dollar rallied
after Federal Reserve Bank of United States ended their Quantitative Easing. After making a
weekly high of 0.8911level during the week, the Aussie consistently dropped to fall by 156 pips
and closed the trading session on Friday at 0.8785 levels against greenback.
Australian dollar started the week on positive note posted modest gains, as the pair traded above
0.89evels. The Australian dollar enjoyed some momentum, and improved over 100 points earlier
during the week ahead of US FOMC meeting. However the pair Officially data showed that,
Australia import price index dropped -0.8 percent q/q in Q3 while the private sector credit
climbed more than expected 0.5 percent in the September. Additionally, the nations producer
price index increased 0.2% on a q/q basis in 3Q 2014, following a drop of 0.1 percent in 2Q 2014.

Technically the pair is expected to find support at 0.877, and a fall through could take it to the
next support level of 0.8714. The pair is expected to find its first resistance at 0.8869, and a rise
through could take it to the next resistance level of 0.8912.

Next week is a busy one for economic data, as Reserve Bank of Australia will announce its rate
decision Central bank is expected to keep the rates unchanged. Traders will also be keep close
eye Retail sales and Trade Balance numbers. Australia will also report Employment change along
with unemployment rates during the week.

This Week Key Events/Developments:

Tuesday: CAD, Core Retail Sales m/m, Retail Sales m/m, Gov Council Member Schembri
Speaks; Wednesday: AUD, RBA Financial Stability Review; NZD, Trade Balance; Friday:
NZD, ANZ Business Confidence.

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