Before I venture off into the late summer sun to rest my weary fingers before returning later to witness the carnage, or anti-climax, here’s a few more thoughts on what lays ahead.
It’s clear from all that’s been written on the subject both here and elsewhere that Mr B’s biggest job is persuading us in the statement and presser that the FOMC can combine tapering with a gentle touch on the tiller to steer the USS Recovery through some still choppy waters.
Tighten too much too early and the chances of unleashing a tidal wave of uncertainty in a fragile economy are immense. Do nothing now and Mr B runs the risk of losing the chance of making a necessary correction to the huge flow of cheap money before it becomes too late, not to mention a severe dent in his credibilty before he finally packs his bags.
The problem isn’t isolated to the US of course and the world’s central banks will be paying closer attention than usual to the market reaction tonight.
I say they’ll not taper this time but will point to a definite move in the next few months and lay down some further specifics. This isn’t the cop-out by the Fed that it may seem. Like I said it’s a delicate situation and recent data hasn’t exactly been of the must-taper-now variety.
What reaction for the greenback? Initially sold-off on the lack of taper but then recovering as the markets are hopefully re-assured of the future strategy and we must hope, above all else, that that is what Captain Bernanke and his crew deliver. Less QE does not necessarily mean higher USD. Investor confidence is crucial here.
GBPUSD has some serious sell interest into 1.6000 as does EURUSD above 1.3400 which will both come into play given this scenario playing out and may yet still hold the key even though they are both relatively close already. USDJPY has good support down to 97.50.
In the spirit of my pre- NFP pay-roll post I’m going to run another competition for you all to make up for the abject disappointment of losing out in the headline comp set earlier by Eamonn. Just give me your humorous/pertinent/scathing alternatives for the initials FOMC.
I ‘ll start you off with Funny Old Muppets Club
Best one judged by the ForexLive team wins the prized trophy
Good luck one and all !
ForexLive winners trophy
