Bye Bye Stimulus

There was little movement in the markets yesterday afternoon following the mixed employment data that came out of the US. That was until the FOMC dropped a bombshell yesterday evening. At 19:00 GMT yesterday the Federal Reserve released their FOMC minutes which suggested there could be an earlier than expected end to the current quantitative easing program. The Dollar strengthened right across the board following the release and both the Euro and Pound pared gains they had made earlier in the week against the Greenback following the fiscal cliff deal.

The announcement slightly panicked equity markets as concerns grew over potential interest rate increases and whether the US economy is actually capable of continuing its recovery without the steroid like effect that the QE program has had. However the comments represent a vote of confidence in the US economy by the Fed and the potential decrease in money supply and rise in interest rates are clearly bullish for the dollar. This was evidenced by the Greenbacks rise against the majority of its counterparts following the FOMC minutes release.

Earlier this morning we saw the release of UK economic data that showed the Markit Services PMI for last month fell to 48.9 and Net Lending to Individuals has dropped to £-0.1B. This caused a momentary spike lower in GBP/EUR as the Pound dropped off 20pips before recovering slightly, however the pair have continued to fall since and is currently trading at 1.2315.

Today is also Non-Farm Friday! We all know what this means – there could once again be some potentially market moving data coming out of the US. At 13:30 GMT the US Nonfarm Payrolls and Unemployment Rate will be released and both could trigger further movement in the Dollar. Cable is currently trading at a key price level having fallen through several areas of support this morning, before breaking beneath a six month upward trend line, as can be seen in the chart below. The next key level of support is at 1.6010 and should this price level be tested, and give way, this would be a strong indication that the rate will continue to drop below 1.60.