Last week was marked by the scheduled meeting of the US Fed. Its outcome was expected with some degree of unease. The tension was caused by uncertainty over parameters of the notorious ‘quantitative easing’ for the near term. US economy’s fate depended on the Fed's decision to a large degree – whether it is in for another cycle of crisis or it can be safely evaded and, as a result, how the dollar dynamics will evolve and export and import flows further develop.
It turns out the concerns were unnecessary – it all finished as usual, in a commonplace manner – they decided to turn on the money press and print as many billions as they need to save the American economy another time. Of course, the US government has a wealth of experience of ‘color print’ but the current situation is delicate in the way that such measures are usually taken in a critical position though it isn’t that extreme now.
The Fed was expected to buy back governmental bonds worth $500 bn within 5 months. In fact the program scope turned out to be $100 bn larger and buyback rates lower with only 75$ bn to be spent a month instead of the planned $100 bn. The Fed also intends to reinvest about $300 bn of its revenues in governmental bonds. The total scope of the program was no sensation either - $900 bn in the context of expectations varying from $500 bn to $1 trillion.
Markets reacted ambiguously – on the one hand, the program involved a corridor wider than forecasted. On the other, implementation rates were significantly below expectations.
Decisions so made were described by most analysts as ‘quantitative easing – 2’ by analogy with recent steps when the Federal Reserve already implemented a large-scale securities buy-up program. Over one and a half trillion dollars was pumped into the US economy then.
There’s one point, though: the securities market was drastically losing liquidity then and ended up on the verge of collapse unlike today when there is some, albeit small, economic growth.
Such Fed’s measures aren’t welcomed by many countries – additional money printed in the context of low interest rates seriously drives the US dollar exchange rate down forcing investors to seek refuge in third world nations’ currencies and create the so-called ‘bubbles’ in other assets. This naturally plays into the hands of American industry but harms exports and exporters.
Reactive steps followed immediately – South Korea's Ministry of Finance will prepare the issue of limiting an inflow of foreign capital for consideration, Brazil’s Ministry of trade promised to take ‘measures in response’ soon. Thailand is also very determined and suggests discussing measures to counteract the impeding dollar wave about to crush the markets of developing countries.
So, everyone is very determined and prepared to stand their ground to the last because it is the last one who will become the king by taking advantage of the exports market…
Analysts of the Volume Analysis Department point out that the EUR/USD and Euro (6E) futures are currently trading below the volume of current contract at 1.3920 – 60,000 lots which indicates short-term downside dynamics of the pair.
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