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Last week, the Federal Reserve unexpectedly refrained from reducing its $85 billion in monthly asset purchases, saying it needed to see more signs of sustained labour market gains. The news took the markets by surprise, sending risk currencies higher.

The decision not to taper now gives the Fed time to review the September jobs and housing reports before its next meeting October 29-30. According to a Bloomberg survey, 24 out of 41 economists now expect the Fed to start tapering in December.

Besides sending risk currencies higher, many Asian currencies edged higher as well. Taiwan's dollar rose to a four-month high when markets opened on Monday morning. Government bonds advanced as well. The Taiwan dollar has so far rallied 1.5 percent this quarter.

Asia's best performing currency so far has been the South Korean Won. The won rose the most in three weeks and has gained 6.1 percent this quarter as foreigners added close to $6 billion of shares this month through September 17.

Several majors reaped the most gains from the Fed's decision. Three of them include the euro, sterling and aussie.

According to data from the Commodity Futures Trading Commission (CFTC), hedge funds and other large speculators increased bets the euro will gain against the dollar to the highest level since July 2011. Net longs on the euro (the difference in the number of wagers by a gain in the currency compared with those on a loss) was 31,907 on September 10, compared with 12,696 a week earlier.

Data from the CFTC also showed that the number of wagers on a decline in the Aussie compared with those on a gain was 27,360 on September 17, the smallest net shorts since May 14.

The Sterling itself climbed to the highest level in eight months after the Fed's decision not to taper. So far, the sterling has risen 5.8 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

Top News This Week

UK: Current Account. Thursday, 26th Sept 9.30am.

I expect figures to come in beween -11B and -11.5B (previous figure was -14.5B).

USA: Pending Home Sales m/m. Thursday, 26th Sept 10pm.

I expect figures to come in at -0.9% (previous figure was -1.3%).

Trade Call

Long NZD/USD at 0.8310

The aussie dollar advanced today after the reading for China's purchasing-managers' index came in at 51.2. The Bloomberg survey median was for 50.9, with the August reading at 50.1.

I expect the upswing to continue. However, we will take an entry on the NZD/USD instead of the AUD/USD as I expect the kiwi to benefit as well.

Hence, we will go long once prices bounce off the uptrend line at 0.8310. We will have a stop loss 55 pips below the entry price and we will have two targets on this trade, exiting the first position at 0.8365 and the second position at 0.8420.

Entry Price = 0.8310
Stop Loss = 0.8255
1st Profit = 0.8365
2nd Profit = 0.8420

(click to enlarge)

Source: Risk Climbs On Fed's Decision