Monday, December 16, 2013

Go short EUR/USD, if you believe in dectaper!

The most important event of this week is the FOMC meeting and the press conference on Wednesday at 8:30pm CET.
With recent US macro data (GDP, employment, housing market) providing hope that the economy is on track to recovery, there is a chance that the Fed might consider to start tapering in December already*.
The Recovery Act allowed the Fed to increase their monthly budget to USD 85 billion, so it could buy more mortgage backed securities and low interest rate treasury bonds to help stabilize the economic climate. There is increasing speculation that the Fed no longer needs to continue spending at its current rate and should begin tapering the monthly budget. The Federal Reserve's current Chairman, Ben Bernanke, is reaching the end of his tenure, so many experts believe it is a good time to start tapering the stimulus package budget. However, there is concern that if the tapering is too abrupt, it may actually hurt the economy more than it helps it. 
Most of market participants believe tapering to start in March 2014, but an earlier start cannot be ruled out either. Any decrease in the money printing would strengthen the USD and be bearish for the EUR/USD.
After a steep increase since mid-November the EUR/USD reached the last local high near 1.3832. From here it turned back down. The increase happened in a very short time, the rate went far away from the 20 and 30 DMAs at 1.361 and 1.356, respectively. A retest of these levels cannot be ruled out. 
If you are considering to open a short position, you could open it at the market price right now with a stop-loss at the local high of 1.3832 and a first target at 1.3522. If you don't want to take this risk, you can chose 1.361 as your first target and roll it, if market movement supports the bearish view on the FX rate.

*A decrease in activity by the Federal Reserve (Central Bank). Typically occurs once the economy is in the recovery stage and nearing a peak in the economic cycle. Some of the activities that the Federal Reserve may engage in while tapering include reducing its spending budget or adjusting the current interest rate. Usually only happens when the Fed feels confident about the economy's direction.

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