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3-Factors That Caused Tapering Delay = US Bond – Mortgage Rates & US Debt Ceiling – Sept 19

September 19, 2013
The taper did not happen for a very simple reason, as according to Ben Bernanke the FED did not see the kind of growth many Guru’s and Pundits have seen and hence, they have decided to wait for more progress in the economy tying it to the economic data before adjusting the pace of its purchases. Market is mentally prepared that tapering will happen, it is again the question of when? And by tying tapering with economic data means that every release of US economic data will be of key relevance.
I see this as simple case of extension, may be until December to allow US Bond market to stabilize, mortgage rates to settle down and another extension given to US debt ceiling that expires after 2nd week of October. Slashing of US growth for 2013 for third time also weakens the tapering case. This could be one big reason FED Chairman hinted that it might still scale back its purchases before end of the year. They all could be vital for FED. FOMC voting of 9-1 against tapering surely means voters wanted more time for reasons best known to them.
Getting back to market, it always look for reason and excuses and during this period there is a strong possibility that the market may start concentrating on US debt ceiling for sometime, which expires around mid-October, fearing shutdown if there is disagreement, which should never happen. Market will also be looking for the release of economic data’s that will remain on top of the agenda for future guidance.
Another area of focus should be Germany, as election is due during the weekend. Merkel has strong position for a 3rd time win that should support Euro that should provide support the European currency in the absence of economic data release. Similarly Pound has been soaring and could make further inroads if today’s release of retail sales does not disappoint. Poor number will provide another opportunity to buy on dips.
Delay in tapering gave US Dollar good beating. Gold and currencies made big gains, but this must have given sigh of relief and some temporary breathing space to the emerging market central bankers/investors, as pressure should ease and their respective currencies should correct accordingly.
However, since the move in currencies and gold have been large after FED’s surprise decision not to taper, market will take time to settle down and the moves could be erratic and big. Specially US market will be very choppy due to release of important economic data’s. So care should be taken while trading and applying STOPS is highly recommended.

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GMT 3:14 – EURO @ 1.3524 = Strong support around 1.3440 may hold, but needs to break 1.3540-50 for a test of 1.3595-00 zones or else could see correction, break of support levels would only challenge 1.3390.

GMT 3:22 – GBP @ 1.6129 = Support is around 1.6070-80 zones that may hold for another upside try of 1.6150 in early Europe, but key level is 1.6180-00, which not be easy to surpass. Break would risk for test of 1.6220-30. However, break of support could risk for a test of 1.5990-00 zones.
GMT 3:28 – JPY @ 98.36 = Japanese currency did make sharp gains but failed to break 97.70 levels, which is a levels to watch. however, needs to move beyond 98.8090- zones or else another test of 97.50 or 98.25 could be a possibility.
GMT 3:33 – AUD @ 0.9495 = I see strong resistance around 0.9550-80 zones and do not see break of this level. however break of 0.9440 will encourage for a test and break of 0.9410 for 0.9350.
GMT 3:38 – GOLD @ $ 1359 = As long as support $ 1335 holds, there is room for more upside, break of $ 1372-75 is required for test of $ 1380-85 zones. fall below $ 13202-5 is required for resumption of down move. However, gold could witness choppy moves.
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