Following the ECB outlining unlimited bond purchasing plan last week, The Fed has decided today to start buying new MBS loading $40B of it monthly in a regular pace in a new QE step till it is to choose to say that's enough and over. The decision is looking targeting the housing market more than the other sector but it will be inevitably working for producing more jobs in a faster way than the current one which lead to producing 96k out of the farming sector in last August as they were in the 3 months before July with downgrading of July reading to be 141k from 163k in the initial reading of it putting more pressure on the Fed from wall street and the main street to take today such waiting action following August Dovish labor report which told the market that the pace of recovery is stagnant facing downside risks and in need to new push from the Fed which is having no problem with the inflation upside risks maintaining a balancing area around 2% on yearly basis.
Ben Bernenke has looked also during the press conference caring of lowering the mortgage yields curve showing that the Fed is appreciating the depressive forces facing the housing sector after the credit crisis. He is looking for restore more confidence in the sector by loading more MBS encouraging the demand for them putting what's like a higher floor to this market.
The greenback has not faced the expected profit taken wave after these waited decisions which included also the Fed's expectation of the interest rate to not be changed until mid of 2015 from the previous expectation which was referring to a late time in 2014 before moving it up from zero as these decisions have come along with higher expectation of the economic growth by the Fed which has mentioned that it see the US GDP between 2.5% and 3% in 2013 up from its previous estimation in June which was referring to a rate between 2.2% to 2.8% and for 2014, it has seen it up to 3.8% from 3.5% in its previous reading.
So, the US equities have got a push with this cheeriness which came instead of showing more worries about the current economic stance increasing the risk appetite putting pressure on the greenback across the broad suggesting stronger demand for commodities and its based currencies like the loonie and Aussi.
The gold looked the stronger finding it easy to its gain with this pressure on the greenback across the broad along side with unknown period of pumping new liquidity.
While the market will be waiting tomorrow to have more knowledge and the inflation upside risks in US with the release of US CPI which is expected to be up by 1.6% y/y in August from 1.4% in July which has been the slowest pace of this index since November 2010 with slowing down of the pace of growth of the US economy which has annualized grown by just 1.5% in Q2 as the preliminary figure of it has shown and this is also the slowest pace of growth since the Q2 of 2011 when it has grown by just 1.3% with declining of the Fed's preferred inflation gauge which is US PCE to 1.5% y/y and it is the slowest pace of it since Jan 2010 when it was 1.2% y/y showing disinflation pressure giving the Fed the excuse to have today action with no worries about the inflation.
God willing, The gold can meet now resisting levels at 1725$, 1790$ and 1802$ before 1827$ which can open the way for its recorded highest level at $1920 on the 6th of September 2010 while easing back from here can be met with supporting levels at 1718$, 1646$, 1584$, 1548$ before 1523$ whereas it has stopped its falling from 1920$.
FX Market Strategist
Walid Salah El Din