In our opinion, the main event of the currency market was the completion of Fed’s QE3 program in late October. To a large extent, it caused the US dollar index increase in November by 2.3%. Of course, it was anticipated, and it surged 11% since the beginning of this year. It was also promoted by clear evidence of the US economy recovery. After the US Q1 GDP in 2014 shrank 1%, it rose 4.2% in the second quarter, and 3.9% in the third quarter. The unemployment rate dropped from 6.6% in January to 5.8% in October.
Amid the US successful economic development, the EU economy indicates a slowdown. The European Q1 GDP upped 1%, while in the second and third quarters it grew 0.8%. The labour market recovery is almost invisible. The unemployment rate in the EU in January was 11.8%, and in October – 11.5%. EUR/USD rate slipped 1.6% in November, and dipped 10.6% since the beginning of the year. Note that currently the ECB is preparing to launch the bank bond purchase program supported by euro printing. This program is similar to the completed QE3 conducted by the US Fed.
The Q1 GDP in Japan this year rose 5.9%, and in the second quarter it tumbled 6.8%. According to forecasts, Q3 GDP would fall 1.6% more. This negative trend is explained by the economy slowdown amid the nuclear plant disaster clean-up operations in Fukushima and “freezing” a number of other plants, the higher price on hydrocarbons in the first half of the year and strong competition of high-tech goods manufacturers from China and South Korea. Japan increased the sales tax from 5% to 8% since April 1st this year in order to reduce the debt load. It also had a negative impact on economic activity. As a result, JPY/USD rate in November dipped 6%, and 14.3% since the beginning of the year. Note that the yen depreciation was caused by the BOJ program of purchasing government bonds, similar to the American "quantitative easing". The unemployment rate in Japan is traditionally low, and in September it was 3.6%. However, it was higher than 5% over the past 60 years only in the midst of a global economic crisis of 2000 and in 2008.
As for December, we accept the possibility of the US dollar strengthening continuation. We recommend paying attention to the following macroeconomic indicators. They may affect the exchange rate.
- Dec 5: Unemployment rate;
- Dec 11: Retail Sales;
- Dec 17: CPI and Fed meeting.
- Dec 12: Employment change and industrial production;
- Dec 17: CPI.
- Dec 16: Trade Balance.