Right now the question is not if Fed will continue tapering but more how much are they going to taper. Are they going to be more aggressively or will they be very conservative.

If you're asking me I don't think they want to start being aggressively with the recent soft US economic data and beside if they send the wrong message to the market it can easily send the stock market in a sell off, which I'm sure they don't want to be blamed of. More likely they will play it very conservatively and will continue the current peace of quantitative easing reduction at 10B/ meeting.

Although Fed decided to do a small tapering and only cutting back their stimulus programs by a minor 10B, Ben Bernanke has said during the last press conference that any further cut in QE is data depending and "end of QE certainly won't be at mid-year" suggesting that it will take longer before they will end the QE programme for good.

But if they start worrying about recent soft US data they may send the wrong message to the market so that's the reason why I presume they will go forward with 10B tapering/meeting.

  • Figure 1. Dollar Index and Taper decision.
If we look over the last meeting and USD index price action we may draw some conclusion about what might happen after today's Fed decision. If we look over the DXY chart on 18 Dec 2013 after the 10B tapering decision USD was rallying. If we are going to have another round of cut in the QE we may see the dollar soaring once again?

Also the technicals are aligned with the fundamentals as we can see the dollar index is right at an important support level.

Best regards,
Daytrader21
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