The main event from this week was definitely the Fed Monetary policy Statement and as expected there was no surprise that Fed taper another 10B of assets purchases, despite the general risk aversion sentiment in the market and despite the geopolitical event which is Ukraine. They have ignored all this factors and they are continuing with a gradual taper of $10B/month as they have put it on an autopilot.
The only thing that has surprised the market was the fact that Fed is moving away from quantitative guidance towards a qualitative one. Also it dropped the 6.5% unemployment rate threshold which it was using to decide when to hike rates.
The unemployment rate is already close to 6.5% and current projections shows that it will hit that target in the next few months it was of no use to keep that target in place because we know that there is no way they will raise rates this year so they have moved away from just watching the labor market as a guide to track the overall economy, they have moved to a qualitative guidance where they will take in consideration other factors to decide when to raise rates.
In Figure 1 we can see a clear pattern and how EURUSD have reacted to each Fed taper action so far. In the first stage we saw the dollar straightening across the board and than a quick rebound erasing all the gains, can it be the case to have today the same action? Yes, it can if we close above the 1.3800 on a weekly basis and above the major TL that connects the 2008 and 2011 high.
Best Regards,
Daytrader21.
The only thing that has surprised the market was the fact that Fed is moving away from quantitative guidance towards a qualitative one. Also it dropped the 6.5% unemployment rate threshold which it was using to decide when to hike rates.
The unemployment rate is already close to 6.5% and current projections shows that it will hit that target in the next few months it was of no use to keep that target in place because we know that there is no way they will raise rates this year so they have moved away from just watching the labor market as a guide to track the overall economy, they have moved to a qualitative guidance where they will take in consideration other factors to decide when to raise rates.
- Figure 1. EURUSD Fed Tapper Effect.
In Figure 1 we can see a clear pattern and how EURUSD have reacted to each Fed taper action so far. In the first stage we saw the dollar straightening across the board and than a quick rebound erasing all the gains, can it be the case to have today the same action? Yes, it can if we close above the 1.3800 on a weekly basis and above the major TL that connects the 2008 and 2011 high.
Best Regards,
Daytrader21.