Taper or not, I’m not expecting a large USD rally

Economics and fundamentals aside, and purely looking at price action in the majors over the last few months, I am struggling to visualise a significantly higher USD like some have been forecasting post-Taper. This whole tapering saga has been well documented and heavily traded over the last few months and whether the Fed has already started, or will reduce QE by large or small amounts, we’ve had all scenarios played out in the market over the last few months. So what has happened in that time?

  • USD/JPY is significantly higher but we can safely argue that this is more of a Yen move based on very easy BOJ policies;
  • AUD/USD is lower but again we can argue that this is more to do with a weakening in the AUD from significantly overbought levels rather than a sudden burst into the USD;
  • Metals are somewhat different and the significant reactions to any type of taper talk are certainly important;
  • EUR and GBP have certainly had some swings against the USD but they haven’t moved overall.

There will be an element in the market who will scream that tapering of any sort is bullish for the USD but I fail to see any strong evidence of this in the price action of the last few months.

  1. Morning Mike, no offence but Sean never said that tapering = no QE, he mentioned in a previous article few weeks ago that some people believed that the Fed Already began tapering possibly in august, and so we have already seen some adjustment in the market, in that case therefore it would be just a matter of announcing it formally, or if that is not the case, as Sean mentions, weither its 10 bl or 15 bl reduction, or whatever the amount per month, i dont think it will also make a Big difference as Sean Mentions! Im with you Sean, your first article on the topic had wheels in my head turning!

  2. Hi Sean,
    So, we can expect significant fall in metals after taper. But that is normally followed by a lower USDJPY, as in April 2013. But market talk is higher USDJPY after taper. So, what will be the expected behaviour of USDJPY after taper – sudden spike higher and then lower with metals or something else?

  3. With you on this Sean. I can’t imagine why Taper would still be a surprise. Unless the taper amount is north of $20-25billion or surprise market with a quicker calendar, there would be no reason for USD to rally. Actually, it may even fall ‘on the news.’

    EURUSD is likely to chop around but for nothing. With German elections running close, I doubt if large directional positions will be taken in 3-4 days time. German elections could be key to Euro though.

    What we must be watching closely is the new appointment of Fed, that has a far more significant and long term implications than discounted taper.

    Just my thoughts.

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