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Although taper odds skyrocket after last non-farm payrolls there are still reason enough for Fed to wait like inflation which fell to 0.7% y/y from 0.9%. As I already said before if Fed doesn’t taper in December it won’t be due to a weak jobs market but because of fear that the stock market will enter in a bubble territory because of excessive speculation.
The Fed will start tapering, not because of strong economic data or because the unemployment will decline, but because of fear that the stock market will enter in a bubble territory because of excessive speculation. This is what the Fed has really done with their QE program sending the equity market to historic-high levels.
As a Forex trader you may ask yourself what is the implication for the US dollar, and what is the better option to find the answer if not looking at past market reaction(see Figure 1). There are other structural factors, other than QE tapering, that are supportive for a dollar rally in coming years, like the raise in the interest rates. Historically, Fed will always raise interest rates with every stock market rise.
The best lesson we can learn after September NO taper decision is to never rule out the possibility of tapering expectations to be postponed until 2015.And in order for us to be able to trade successfully we must keep in mind both sides of the market.
Best Regards,
Daytrader21.
- US Dollar and Tapering
The Fed will start tapering, not because of strong economic data or because the unemployment will decline, but because of fear that the stock market will enter in a bubble territory because of excessive speculation. This is what the Fed has really done with their QE program sending the equity market to historic-high levels.
As a Forex trader you may ask yourself what is the implication for the US dollar, and what is the better option to find the answer if not looking at past market reaction(see Figure 1). There are other structural factors, other than QE tapering, that are supportive for a dollar rally in coming years, like the raise in the interest rates. Historically, Fed will always raise interest rates with every stock market rise.
- Figure 1. EUR/USD market reaction to each QE program.
The best lesson we can learn after September NO taper decision is to never rule out the possibility of tapering expectations to be postponed until 2015.And in order for us to be able to trade successfully we must keep in mind both sides of the market.
Best Regards,
Daytrader21.
