Post-Taper Day Mop Up: Continuation Or Consolidation?

The Fed took the market by surprise again by announcing the $10bn taper to asset purchases to start from January. This could perhaps have been the reason stocks have not slid yet because the start of taper is not immediate and also because the taper amount is small. The dollar initially looked like it wasn’t going to do much and most pairs didn’t really trend after the announcement, with many dollar pairs returning to pre-announcement levels for some considerable time before the dollar appreciation took hold. Also of note was the resilience of the Pound which rallied strongly before and immediately after the announcement aided by very strong employment numbers pre-FOMC, bucking the trend for dollar dominance.

Thursday sees UK Retail Sales, US Unemployment Claims, Existing Home Sales and the Philly Fed Manufacturing Index although it seems unlikely that they will be too significant unless a long way from forecasts, with FOMC aftermath the most dominant theme in the markets still.

USD% Index

Although the dovishness of the beginning of Bernanke’s speech was not clearly dollar positive, the buck did eventually find some bids to push higher after EUR/USD had finished and attempt higher. We are now at a critical juncture for the dollar with strong channels resistance not far away to test the sentiment remaining for dollar upside. A failure here could quickly unwind some positions but it seems like the dollar will continue on it’s upward trajectory now that the much awaited taper is here. I am bullish USD

USD% Index Resistance (EUR/USD support): EUR/USD 1.3659, 1.3650, 1.3600
USD% Index Support (EUR/USD support): EUR/USD 1.3732, 1.3775

EUR% Index

Post-FOMC EUR/USD spiked higher, then shot down a hundred pips before bouncing right back up again a hundred pips, where it held for some time before selling strongly and finally breaking the 1.3700 level meaningfully to the downside. Dollar appreciation should see a continuation of downside for the EUR% index particularly now that the US budget deal seem likely.
I am bearish EUR

EUR% Index Resistance: EUR/USD 1.3717, 1.3757, 1.3800
EUR% Index Support: EUR/USD 1.3642, 1.3582

JPY% Index

The Nikkei rallied strongly after the FOMC which weakened the Yen significantly as the combination of USD strength and Yen weakness pushed USD/JPY sharply higher. With talks in Japan about increasing the asset purchases there at the same time as a reduction in asset purchases on the US, Long USD/JPY positions are the perfect storm for further upside which should see the Yen weaken significantly. I am bearish JPY

JPY% Index Resistance (USD/JPY Support): USD/JPY 103.25, 103.00, 102.18
JPY% Index Support (USD/JPY Resistance): USD/JPY 104.00, 104.50, 105.00, 105.28

GBP% Index

Fantastic data from the UK on Wednesday meant the there was a strong rally ahead of the main risk event of the day, with broad dollar strength later on failing to defeat the bullishness of the pound. This seems likely to continue although it may be a struggle higher in the face of a strong dollar rally in the long run. Bias remains to the upside for the time being while above the weekly pivot.

I am bullish GBP for the time being

GBP% Index Resistance: GBP/USD 1.6429, 1.6450
GBP% Index Support: GBP/USD 1.6300, 1.6287

AUD% Index

Aussie initially popped lower after the FOMC, then bounced back slightly higher than pre FOMC levels before dollar strength pushed the pair back to lows again. We have a similar situation here as in Japan with a potential increse of stimulus to contrast against a decrease in stimulus from the US, although nowhere near the same scale as Japan, but AUD/USD should see further downside to break multi-year lows not too far away. I am bearish AUD

AUD% Index Resistance: AUD/USD 0.8885, 0.8900, 0.8942
AUD% Index Support: AUD/USD 0.8850, 0.8800, 0.8750

CHF% Index

A rapid decline post-FOMC could see the recent strength unwind quite quickly as the previously strongest currency’s long positions will likely be closed or reduced to push the index lower. There is still plenty of downside before break of bullish trend though.

I am bearish CHF

CHF% Index Resistance (USD/CHF support): USD/CHF 0.8935, 0.8883, 0.8850
CHF% Index Support (USD/CHF resistance): USD/CHF 0.8998, 0.9096, 0.9150