Fed Offers No Hints on Tapering

The latest Fed minutes have been released and there have been no new hints on tapering. Investors are increasingly nervous and impatient after Bernanke mentioned the much dreaded ‘t-word’; tapering. Currently the U.S. wastes $85 Billion per month on an economic stimulus package which is counterproductive and does not have any positive benefits despite what popular believe suggests.

The U.S. economy has slowed down since QE3 was announced and equity markets as well as forex markets need to soon wake up and realize that the current stimulus will not be unlimited. All eyes are on the September meeting where it is widely expected by financial markets that the Fed will start to taper which basically means reduce the stimulus package.

The U.S. economy will not support such a move and markets are starting to slowly price in a reduction in stimulus. The Fed sends mixed signals and their actions do not support their claims. After Bernanke spoke in July and hinted that tapering could be on the table he boxed himself into a small corner and one thing markets hate the most is uncertainty.

The USD has gained on the news as expected, but the gains should be short lived. A correction in the EURUSD as well as GBPUSD was due regardless of the Fed minutes and we are currently at the start of a minor correction which is required in order to maintain the overall uptrend. The correction should be limited to the pairs support zones and form a higher low.

The AUDUSD offers the best buying opportunity in major USD crosses. The bearishness in this currency pair is not warranted and it has formed a reverse head-and-shoulders formation on the D1 timeframe which is a bullish chart pattern. Additionally keep an eye out for the NZDUSD which also approaches very attractive buying opportunities.

The FOMC meeting in September will be a crucial one as economic data does not support a reduction in a stimulus package which should not even be in place. The Fed can now either act and cause a severe correction in equity markets plus a short bounce in the USD and a surge in interest rates which will further harm the weak economy or it will reduce and the economy will weaken regardless.

Written by Paxforex