FX News – August 23: USD/JPY Surges, AUD/USD Flat, More Taper Talk

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The USD/JPY continued its surge that began in the middle of the week. Early in today's trading, the pair already broke through the 99.00 mark before settling around the 98.90-98.95 levels.

The USD/JPY pair is currently trading at 98.95, with initial resistance seen at 99.39, followed by 99.64. Meanwhile, initial support is at 98.15, followed by 97.90.

As for the AUD/USD pair, it has so far hovered around the 0.9000-0.9040 range since yesterday, as it faces a stronger greenback and the chaotic mood for Asian currencies today. This presents risks of the pair going below 0.9000 again and settle somewhere around the lows of early August around 0.8850 at least in the near term.

The AUD/USD pair is currently trading at 0.9022, with initial resistance seen at 0.9085, followed by 0.9107. Meanwhile, initial support is at 0.8971, followed by 0.8948.

Tapering Imminent, But How Soon will it Happen?

As we have seen from the release of the FOMC minutes last Wednesday, members of the committee still haven't decided when the QE tapering will actually happen. But at least, it is more than given already that it will happen, only that the timing hasn't been decided yet. The market, however, pretty much expects it to start mid-September during the FOMC meeting.

Aside from the question of timing, other things have to be addressed too. As the name would suggest, the tapering will happen gradually. But how gradual? And where would the Fed start?

There are analysts who say that it could start at cutting off $15 billion in September, followed by another $15 billion in December. If this happens, the QE would be reduced from the original $85 billion to $55 billion by the end of the year.

The composition of the cuts is still unclear as well. How much of treasury buys and how much of mortgage-bond buys will they cut? There are analysts who put it at $5 billion for the former, and $10 billion for the latter during the initial phase of tapering.

In the NY Fed's July Survey Response of Primary Dealers, they said that they expect the tapering to be completed by June 2014. Fed rate hikes may happen several months after that, probably in early 2015.

By FX Strategy Team, Published on 23rd of August 2013
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