QE Tapering Now Or Later?

by: Mario Sant Singh

A surprise came on Sunday when Former Treasury Secretary Lawrence Summers gave up the chance to become one of the world's most influential central bankers by withdrawing from the candidate list for the next Chairman of the Federal Reserve.

"I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the administration or, ultimately, the interests of the nation's ongoing economic recovery." Summers wrote to President Barack Obama and President Obama accepted his request.

Summers was one of the three candidates named by President Obama, alongside with Janet Yellen (current FED vice-chairman) and Donald Kohn (former FED vice-chairman). Summers and Yellen were both hot favourites to take over Ben Bernanke after his term ends on 31st Jan. With the withdrawal of Summers, it seems like it is going to be a one-horse race and there is a high chance of seeing the first woman heading the FED next year.

Yellen is considered to be more pro-QE as compared to Summers and the sentiment is reflected in the market opening prices today. EURUSD opened 60 pips higher; AUDUSD opened 80 pips higher and USDJPY opened 70 pips lower than their respective closing price last Friday. Similar phenomenon is observed in the other Dollar majors like NZDUSD, USDCAD & USDCHF too.

Now that the market has priced in the fact that Yellen will most likely succeed Bernanke come February, the next major event to impact QE is the FOMC statement & press conference scheduled this week.

According to a Bloomberg news survey conducted on 6th Sept, most economists are expecting the QE to be tapered from USD85B to USD75B this week. Although it is expected of the FED to taper the stimulus soon, but the recent employment figures came lower than expected in the last 2 months, therefore I still see a 50-50 chance that the tapering may be delayed to later this year or the tapering amount could be lesser than expected.

US and Russia have also struck a ground-breaking deal last Saturday in Geneva. The deal stipulates that all Syria's chemical weapons must be destroyed or removed by first half of 2014, failing which, the deal could be enforced by UN resolution backed by the threat of sanctions or military force.

The risk currencies, particularly AUD and NZD, cheered this news. We saw the AUD and NZD rallied against all their counterparts at the opening today.

Top News This Week

UK: MPC Asset Purchase Facility Votes. Wednesday, 18th Sept 4.30pm.

I expect the votes to remain as 0-0-9 (previous votes were 0-0-9).

The 3 numbers represent the number of members voting to increase the Asset Purchase Facility, the number of members voting to decrease the Asset Purchase Facility and the number of members voting to maintain the Asset Purchase Facility respectively.

USA: FOMC Statement. Thursday, 19th Sept 2.00am.

USA: FOMC Press Conference. Thursday, 19th Sept 2.30am.

Trade Call

Short XAU/USD at 1321

On the H1 chart, XAU/USD is on a downtrend. The immediate support is at the level of 1323. With the positive development of the situation in Syria and FOMC press conference scheduled this week, I am expecting the downtrend to continue once the QE tapering is announced.

We will go short once prices fall to 1321, after it breaks the immediate support level of 1323. We will have a stop loss 500 pips above the entry price, which is above the 1323 level. We will have two targets on this trade, exiting the first position at 1316 and the second position at 1311.

Entry Price = 1321

Stop Loss = 1326

1st Profit = 1316

2nd Profit = 1311

(Click to enlarge)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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