Gold is Reacting to News About QE3

As Wednesday Fed decided to maintain the Quantitative Easing Program in place, we could see the American dollar dropping but indices as DAX, Standard & Poor’s 500, Nasdaq and Dow Jones Industrial Average reaching historical highs. This decision was felt and integrated in the price of gold. Since Ben Bernanke announced a possible change of the stimulus program, we saw the price of gold increasing at a steady pace.

Since the beginning of 2013, gold lost nearly 20% anticipating a reduction in the stimulus program but starting with June, when the possible tapper was announced, gold start climbing, like it encapsulate the uncertainty and lack of trust of the investors, and clearly indicating the continuity of the QE3. Also, Lawrence Summers’s withdrew as a candidate to head the Federal Reserve made the gold climbing as a proof that Janet Yellen has now more chances to assume Ben Bernanke’s responsabilities and to continue the unconventional monetary policy.

If Fed will cut the stimulus, gold is expected to get on an increasing trend, reaching $1400 per ounce while if the stimulus is maintained, gold will oscillate at lower values, most probably respecting the boundaries of a range. Even if by the end of the year the FOMC will meet again, there are poor chances to see the QE3 tapered. Most probably, the decision will be taken by the new chairman of Fed which will integrate the decision in a new strategy to run the American economy.

As St. Louis Fed’s Bullard delivered a speech later today, he expressed his view regarding the stimulus program which is effective and benefic for the economy. He doesn’t see any problem in having Yellen as head of Fed. Also, the fact that the QE3 wasn’t tapered at the last meeting isn’t a surprise for him who doesn’t expect this decision to be taken by the end of this year. Even if they would have decided to taper, $10 billion would have made a difference, in his opinion.

The Quantitative Easing Program Remains in Force

The FOMC decided to wait and hold  the QE3 in place at a pace of $85 billion per month. Apparently, the economy of the United States is not ready to quit the stimulus, decided the FOMC members by a 1-to-9 vote. Indeed, the data below expectations coming from the labour market influenced the decision took today and Ben Bernanke gave assurances that the progress of the economy  is basically deciding whether or not the QE3 will continue to run or not.

Likewise, the interest rate is going to remain at low levels with no changes on the long-term. The “no tapering” indicated an economy still fragile, then add the fact that the Fed is revising down its economic growth forecasts, seeing  growth between 2% and 2.3% this year, down from 2.3% to 2.6%. Even if the program is being maintained, it doesn’t mean that it failed to deliver results, just that a better recovery of the economy is needed.  As an example, since September 2012 when the QE3 started, the jobless rate fall from 8.3% to 7.3%, a substantial improvement but still above the targeted percentage. As there are no worries about inflation which this year is expected to vary between 1.2% and 1.3%, the Quantitative Easing program will continue to support the American economy as long as needed.

Tomorrow FOMC Will Decide QE3′s Fate

Tomorrow is the much awaited day, when chairman Ben Bernanke will expose his decision concerning the evolution of the third Quantitative Easing program that has been implemented for one year, so far. Everybody’s eyes will be on Fed’s chairman and for sure the markets will be highly sensitive to each word delivered.

The big question is: will the QE3 be reduced now? Or later this year?

Most of the investors, and also most of the surveys conducted by Reuters and Bloomberg are pointing towards a contraction of $10 billion that will be announced tomorrow, but the amount may vary between $5 and $25 billion. Tomorrow are expected forecasts about the American economy for 2016 and it will be interested to follow the way they will treat the fact that in January 2014 Ben Bernanke will no longer lead the Federal Banks of the United States. Janet Yellen is the favorite so far, but we have to be careful to any possible surprises.

Even if economists believe that Yellen’s approach will be almost the same as the one of Bernanke and another chairman will make radical changes, we cannot expect this scenario to happen. Giving the size and importance of the QE, no matter the chairman, decisions will be taken in the best interest of the American economy. Thus, tapering will happen gradually and further changes will be made according to data coming from the labor and housing sectors, in particular. Anyhow, the difficult part of the process of strengthening the economy just now is coming, and the next chairman will have to be able to control the situation in a proper way.

Both gold an silver’s futures dropped in anticipation of the decision that is coming tomorrow, investors preferring to wait. As it concerns the price of gold, it is expected to further decline until the end of this year. Same for the emerging markets, which are already feeling the effects of the “absence of QE” due to the considerable decrease of inflows of money.

Bitcoin (BTCUSD) Consolidated in a Symmetrical Triangle

We haven’t touched the Bitcoin subject for a while now, this instrument that became of interest for speculators after the incident with Cyprus seems to react something like a safe heaven.

When the markets are undecided or the risk aversion takes its place in trading the Bitcoin is bought.


Chart: BTCUSD, H4

From the beginning of July the price for Bitcoin in dollars has moved in a pretty clear up trend. In September the line of the trend was breached and a channel has formed. The price started to consolidate, inside the up channel, in a Symmetrical Triangle with a middle price of 1374 per a Bitcoin.

If the price will fall and close on a 4 hours chart under the lower line of the triangle we can expect for the drop to continue to 130.00, where it will find the trend line, or even lower to 120.00 where it will find the 7th September low (the full target for the downside sits around 110.45$/Bitcoin).

On the other hand a breach above the upper line of the pattern could mean that speculators are willing to buy this digital currency, so the price might break above the 148.64 resistance and rally to 162.20, where it will find the trend line.

The volatility for this currency pair could rise tomorrow during the FOMC meeting and press conference.

EURUSD Technical Overview for 16 – 19 September

Chart: EURUSD, H4


EURUSD doesn’t find itself in a very easy to read situation. On a larger time frame it can be seen that the price has moved sideways between 1.2740, the demand area, and 1.3420, the offer area. If the time frame will be lowered it can be seen that the price is pretty close to the resistance area.

On the four hour chart we can see an up move that was confirmed today by the positive gap. But the sellers have pushed the price back to a former resistance at 1.3321. If a 4 hour candle will close under this current support, we are expecting for the drop to continue to 1.3254, the next support. If the gap will not be fully closed and the price will rise above 1.3400 the price might rally above the latest high and touch 1.3500.

Even though the Technical Analysis proved to work and offer high probability signals for trading no one should omit the fundamental factors that move the market. At this point EURUSD’s price action is pretty sensible and could turn the statistics around.

This week’s main event is the FOMC meeting from Wednesday. Investors are waiting for news regarding the Quantitative Easing. Tapering or maintaining the program will trigger volatility and the markets might react different from what the technical analysis is signaling.

What to Expect from the Forex Market Next Week 16 – 20 September

Another week has past and some very interesting readings were published. Wednesday Great Britain has published some very good data from the labor market. Its Claimant Count Change has fallen 32.6K and the Unemployment Rate dropped unexpectedly at 7.7%. The next day Australia reported a rise in its Unemployment Rate of 0.1% and RBNZ’s governor said that it expected a rise in the inflation rate in 2014 and they might have to raise the interest rate. Thursday it was also published the Unemployment Claims for USA at a value of 292K, but it might have been a problem with their computerized systems and this number could be revised next week.

The economic calendar for next week looks like this:

Date Currency Forecast Previous
MonSep 16 NZD Westpac Consumer Sentiment 116.6
GBP Rightmove HPI m/m -1.80%
JPY Bank Holiday
EUR Italian Trade Balance 4.13B 3.62B
EUR CPI y/y 1.30% 1.30%
EUR Core CPI y/y 1.10% 1.10%
CAD Foreign Securities Purchases -2.23B -15.41B
USD Empire State Manufacturing Index 9.2 8.2
USD Capacity Utilization Rate 77.80% 77.60%
USD Industrial Production m/m 0.50% 0.00%
TueSep 17 GBP BOE Quarterly Bulletin
AUD Monetary Policy Meeting Minutes
AUD New Motor Vehicle Sales m/m -3.50%
CNY CB Leading Index m/m 1.40%
CNY Foreign Direct Investment ytd/y 7.10%
NZD REINZ HPI m/m -0.50%
EUR Current Account 18.3B 16.9B
GBP CPI y/y 2.70% 2.80%
GBP PPI Input m/m 0.30% 1.10%
GBP RPI y/y 3.20% 3.10%
GBP Core CPI y/y 2.10% 2.00%
GBP HPI y/y 3.40% 3.10%
GBP PPI Output m/m 0.20% 0.20%
EUR German ZEW Economic Sentiment 45.3 42
EUR ZEW Economic Sentiment 47.2 44
EUR Trade Balance 15.3B 14.9B
USD Treasury Sec Lew Speaks
CAD Manufacturing Sales m/m 0.60% -0.50%
USD Core CPI m/m 0.10% 0.20%
USD CPI m/m 0.20% 0.20%
USD TIC Long-Term Purchases -45.3B -66.9B
USD NAHB Housing Market Index 59 59
WedSep 18 NZD Current Account -1.87B -0.66B
AUD CB Leading Index m/m -0.20%
AUD MI Leading Index m/m 0.00%
AUD RBA Assist Gov Edey Speaks
GBP MPC Asset Purchase Facility Votes 0-0-9 0-0-9
GBP MPC Official Bank Rate Votes 0-0-9 0-0-9
CHF ZEW Economic Expectations 7.2
USD Building Permits 0.95M 0.95M
USD Housing Starts 0.93M 0.90M
USD Crude Oil Inventories -0.2M
CAD BOC Gov Poloz Speaks
USD FOMC Economic Projections
USD FOMC Statement
USD Federal Funds Rate <0.25% <0.25%
USD FOMC Press Conference
ThuSep 19 NZD GDP q/q 0.20% 0.30%
JPY Trade Balance -0.81T -0.94T
CNY Bank Holiday
AUD RBA Bulletin
JPY BOJ Gov Kuroda Speaks
JPY All Industries Activity m/m 0.30% -0.60%
CHF SECO Economic Forecasts
CHF Trade Balance 2.74B 2.49B
CHF Libor Rate <0.25% <0.25%
CHF SNB Monetary Policy Assessment
GBP Retail Sales m/m 0.50% 1.10%
GBP CBI Industrial Order Expectations 2 0
CAD Wholesale Sales m/m 1.60% -2.80%
USD Unemployment Claims 323K 292K
USD Current Account -96B -106B
USD Existing Home Sales 5.27M 5.39M
USD Philly Fed Manufacturing Index 10.5 9.3
USD CB Leading Index m/m 0.60% 0.60%
USD Natural Gas Storage 65B
FriSep 20 NZD Visitor Arrivals m/m 1.30%
CNY Bank Holiday
NZD Credit Card Spending y/y 4.70%
JPY BOJ Gov Kuroda Speaks
GBP Public Sector Net Borrowing 11.9B -1.6B
CAD Core CPI m/m 0.10% 0.00%
CAD CPI m/m 0.10% 0.10%
EUR Consumer Confidence -14 -16
USD FOMC Member George Speaks
USD FOMC Member Tarullo Speaks
USD FOMC Member Bullard Speaks

As you can see in the table, Tuesday there will be posted the CPI for Great Britain, the German ZEW Economic Sentiment and the Core CPI for the United States. Wednesday the event of the day and maybe the most important of the week is the FOMC Press Conference. The markets are waiting for details regarding the Quantitative Easing program. Thursday Great Britain will publish its Retail Sales and from USA there will be the Unemployment Claims, Existing Home Sales and Philly Fed Manufacturing index. On Friday Kuroda will have a speech and Canada will report its CPI.