01, October 2013

EUR/USD (a 4-hour chart)

EUR/USD (a 4-hour chart)

The market lacked a clear direction last week. Speculation about narrowing the Fed, which was the main drive of the market in August and early September, were exhausted. The markets seem to have shifted the focus to fact the Fed will depart from the purchase of assets in December. Indeed, on Friday, the famous pigeon of Chicago Fed Evans even raised the possibility that the Fed may delay narrowing until January. However, it should be noted once more that the rule of Bernanke as Fed chairman ends on January 31 next year, and the current Vice Chairman Yellen is a leading candidate. As a dove, Yellen really can keep more of the stimulus and that is what the markets had expected. And, in any case, the high employment rates will be needed to strengthen the decision to narrow. The number of new jobs created in the non-agricultural sector, will be released this week.

As we approach the end of the quarter, attention was directed to the fear that the U.S. government could face funding problems by mid-October. Recent talks on Friday showed that the Senate has passed and sent to the House a bill to fund the government from October 1 to November 15. None of the Republicans supported the bill.

Republicans should decide whether to support the bill within the next 3 days. According to U.S. President Obama, they have to decide "whether to join the Senate and to allow the government to work or close it, as they can not get a decision on an issue that has nothing to do with the deficit." It is likely that the White House will add new articles to the bill to implement the interrupted law on health (Obamacare). Senate noted that it objects to these measures extending the uncertainty in the ceiling of the U.S. budget.

FOMC is waiting for the Fed leader change. Jeffrey Gundlach, the manager of the bond fund, DoubleLine Total SA Return Bond Fund, believes that the FOMC will not turn off stimulus measures until January, until the Fed's head change.