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The US dollar rallied across the board as the Fed finally announced QE tapering. Will this trend continue on low volume? The main highlights in the week of Christmas are Canadian GDP, US Durable Goods Orders, US housing data and unemployment claims. Here is an outlook on the top market-movers this week.

The Federal Reserve began unwinding QE3 and announced a  $10 billion taper.  This important decision was not widely anticipated at this point and resulted in a stronger dollar, despite the small size of the taper and the stronger forward guidance. The yen and the euro showed more weakness in the aftermath than the pound. The Fed members agreed that the American economy was strong enough for this move and also promised to keep forward guidance well after the unemployment rate declines below 6.5%. However the decision to maintain low inflation softened the tapering announcement. How soon will QE end altogether? And will the US economy be able to stand on its own two feet in 2014?  Let’s start:

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  1. Canadian GDP: Monday, 13:30. Canada’s economy advanced 0.3% in September beating predictions for a 0.1% rise. However the pace of growth in the third quarter reached a two year high of 2.7%. The BOC’s estimates that pace of growth will accelerate in the coming months. However global economy still remains fragile which may impact Canadian growth prospects. Canadian economy is expected to grow by 0..1%
  2. US Durable Goods Orders: Tuesday, 13:30. The value orders for long lasting goods unexpectedly declined in October, down by 2.0% due to a 16% drop in demand for civilian and defense aircraft. The reading missed estimates for a 1.5% fall following a 4.1% climb in September. Meanwhile Core durable goods orders also dropped, falling 0.1%, contrary to predictions of a 0.5% gain. The readings suggest companies may have refrained from placing orders in October, awaiting the outcome of a budget deal. Nevertheless, ISM figures suggest manufacturing picked up since the spring with strong automobile sales and higher domestic demand, suggesting stronger figures in the coming months. Orders for durable goods are expected to increase 1.7%, while core orders are expected to climb 0.9%.
  3. US New Home Sales: Tuesday, 15:00.  Sales of new U.S. single-family homes surged by a nearly 33-1/2 years record pace in October, reaching a seasonally adjusted annual rate of 444,000 units which is 25.4% higher than in September. The huge leap shows that housing market remains strong despite rising mortgage rates. October reports were delayed due to the partial government shutdown in early October. Economists expected new home sales to reach 432,000-unit pace. If October’s sale pace continues, it would take 4.9 months to finish house supply in the markets. A further rise to 449,000 unit pace is expected now.
  4. US Unemployment Claims: Thursday, 13:30.  The number of Americans filing applications for U.S. unemployment benefits edged up unexpectedly last week to 379,000, a nearly nine-month high, exemplifying the volatility around the holiday season. The reading missed analysts’ forecast of 336,000 new claims. The more stable four-week average climbed to 343,500, the highest in a month, from 330,250 in the prior week. However claims are very volatile at this time of year therefore are not to be overrated. Another rise of 382,000 is forecast this time.

*All times are GMT.

That’s it for the major events this week. Stay tuned for coverage on specific currencies.

More:  FX Outlook 2014 – Conditional Dollar Strength

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