Introduction
On the 13th of September 2012 the United States of America's Federal Reserve bank (Fed) announced a third round of quantitative easing (QE3). Under QE3 the Fed was to launch a USD 40 billion per month, open ended bond purchasing program of agency mortgage-backed securities. On December 12 2012, the Federal Open Market Committee (FOMC) announced an increase of USD 45 billion to the open ended purchases bringing the total to USD 85 billion worth of stimulus. The EURUSD had opened at 1.29 on the 13thof September 2013 and following the announcement a bullish trend was unleashed. Below is the hourly chart of the EURUSD during that period.
Having witnessed the signs of economic growth, the Federal Reserve announced its intention to taper the QE3 program contingent upon continued positive economic data on 19 June 2013. Tapering is a gradual winding down of central bank activities used to improve the conditions for economic growth, in this case QE3. Below is an comical illustration of tapering.
Following the taper announcement in June 2012, stock prices tumbled and the EURUSD dropped to 1.3000 at the end of June 2013 from 1.3393 on the 19th of June 2013. Below is th…
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