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Market Looking Towards FED for Direction – Sept 18

September 18, 2013
As the countdown begin, we are few hours away from FED announcement on taper. Though market seem to have digested that Federal Reserve will reduce its bond purchase amount, it is the size that should matter most. But, sooner or later tapering should give jitter to the market because of fear that liquidity will be sucked in from the banking system and even a modest USD 10 billion monthly reduction will have lasting impact. A one time USD 10-20 billion announcement may have lesser impact. Any delay would mean Fed still sees risk to the US economy.
Right now I would say FED is the winner, the only thing that they are required to do is to define and bring clarity between tapering and tightening and by providing comfort that interest rates will remain low for longer period of time. Since Federal Reserve had succeeded in preparing the market for trimming, so there is a minor chance that FED may avoid tapering this time, if they do so, then whenever they decide to taper in future, it is going to be the most difficult task for FED that may create extraordinary problem. More importantly the big question for the moment is that how would market behave after the Fed announcement is yet to be seen.
Meanwhile, market trading volumes have thinned down, which is understandable.  As there is plenty of talk about stocks an bonds, I think initial reaction of emerging market should be the key for market stability and direction that should not be ignored. Gold has already taken $ 135 trashing and could get more beating before the announcement. US 10-year Bond could face more nervous moment. USD could not gain from tapering phobia as Euro, GBP, AUD, KIWI and LOONEY (CAD) are the clear winners.
However, in present condition when there is lot of guess work, it is hard to predict the market, but do keep a close watch on Cable, as Pound Sterling could benefit from stronger sentiment after the release of BOE minutes.

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GMT 3:13 – GOLD @ $ 1297.50 = We could see some nervous moment in gold with choppy moves. Gold may struggle to beyond # 1302-05 levels for another test and dip towards $ 1285-90. Today’s major levels to watch is $1260 on the downside and  on the $ 1335 is the level to watch.
GMT 3:21 – EURO @ 1.3350 = Range trading is expected between 1.3320-90 levels, any extension could move is either towards 1.3290 or 1.3425. Prior to Fed announcement , bias should be on the upside. On a broader scale levels to watch is 1.3240 and 1.3470.
GMT 3:28 – GBP @ 1.5897 = Prior to release of minutes Cable may enjoy strength and should hold around 1.5860-70 levels. but any upside rally will find hard to surpass 1.5950-60, a clear break may push it towards 1.6030-50 zones. on the downside 1.530-40 is the level to watch.
GMT 3:37 – JPY 99.24 = JPY is hovering in 260 pip range since last 17-days and needs to move beyond 100.50 on break of 99.95-00 for test of 101.20-50 zones or risk for sharp gains for Japanese currency is possible if 97.70 breaks. During the day Yen is likely to remain within 98.80-99.80 band.
GMT 3:40 – AUD @ 0.9343 = Aussie has support around 0.93 levels, only break risk for a test of 0.9260-70 zones, which looks difficult, as AUD could challenge 0.9375-85 to make another attempt towards 0.94 levels.
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