FX News – December 19: Fed Announces QE Taper, Market Reacts Positively

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The Fed finally announced that it would cut its bond purchases by $10 billion starting in December. However, Fed Chairman Ben Bernanke said that the pace would remain data-dependent.

In his statement, the Chairman said that the course of the taper will not have a pre-set pattern. Instead, they will adjust it depending on changes in employment and inflation data. For example, the Fed could decide to skip a meeting if the economic conditions are disappointing, and then make another cut if conditions are favourable.

Not everyone was happy with the decision, however. This included the Boston Fed President Eric Rosengren. He said he believed that, "unemployment rate is still elevated and the inflation rate well below the target", which meant that the taper is "premature" until incoming data provides a clear indicator that the growth in the economy "is likely to be sustained above its potential rate."

Nevertheless, the market reacted positively to Chairman Bernanke's statement. The USD/JPY pair, for example, broke through the 104.00 level after the Mr Bernanke's statement. Before that, it was trading at around the 103.20 level. After that, however, it blew past the 104.30 mark, reaching highs of 104.36.

The mood was a little more subdued at the opening of the Asian session, though. The pair slid below the 104.00 mark and is currently trading at 103.89. Initial resistance for the pair is at 104.99, followed by 105.25. Meanwhile, initial support for the pair is at 103.32, followed by 103.06.

The kiwi, meanwhile, crashed to a low of 0.8192 around the time of Mr Bernanke's statement. It managed to recover some of its losses after New Zealand released a positive trade balance of $183 million, which drove the NZD/USD pair to 0.8250. However, it failed to sustain the level and has since slid under the 0.8200 zone. It is currently trading at 0.8198, with initial resistance seen at 0.8255, followed by 0.8276. On the other hand, initial support is at 0.8137, followed by 0.8117.

By FX Strategy Team, Published on 19th of December 2013
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