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Outcome of FOMC Meeting: No Tampering, EUR/USD Soars

September 18, 2013

EUR/USD was trading sideways for the most part of today’s session, but sharply rallied after the Federal Open Market Committee greatly surprised the market, refraining from reduction of stimulus program. While recent macroeconomic data was not in favor of stimulus tampering, most market participants expected that quantitative easing would be scaled back at least by small degree. Signs that monetary policy will stay extremely accommodative for a long time are definitely bearish for the dollar.

Housing starts rose from 883k in July to 891k in August on a seasonally adjusted basis, less that forecast 930k. Building permits were at the seasonally adjusted annual rate of 918k in August, while analysts have hoped that the permits would stay at the July rate of 954k. (Event A on the chart.)

Crude oil inventories decreased by 4.4 million barrels last week and are nearing the average range for this time of year. The decrease was much bigger than forecast 1.2 million and the previous week’s drop of 0.2 million. Total motor gasoline inventories decreased by 1.6 million barrels and are in the upper half of the average range. (Event B on the chart.)

FOMC shocked the Forex market today as it refrained from QE tampering. The Committee said in the statement:

The Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.

It means that the total size of the purchases remains at $85 billion per month, the same as it was previously. Additionally, interest rates stay at low levels as long as the unemployment rate remains above 6.5 percent. The central bank expects this level to be reached by the end of the next year. (Event C on the chart.)

EUR/USD for 2013-09-18

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