Thursday, Aug 22

Asad Rizvi

I have been arguing since day one that FED Chairman has clearly hinted on June 18 that Fed could end its asset purchase plan by the middle of 2014 that will be tied to economic conditions. He then emphasised that if FED forecast is correct, it could begin slowing its asset purchase by end of 2013. This is what was repeated according to release of July minutes 

The confusion on Fed's tapering plan was intentionally created, as there was lot of hue and cry, mostly from well connected fund managers and investors having access to easy money that were earning hefty profits against cheap borrowings, fearing that reversal or scaling down of asset purchase could have adverse impact on profitability that can shift their position from profit to loss if they are unable to reduce their positions. 

They were simply disregarding a clear Fed message that it cannot continue with asset purchase for forever, but it did force Ben Bernanke to slightly change his tone and other Fed members realizing the gravity of the situation came to the rescue of Fed Chairman with their own views to bring calm in the market. There can be difference in opinion, but such huge decisions are part of policy matter that cannot be overruled with a stroke of the pen. 

With the current pace of growth rate, which should be acceptable to Fed and with unemployment rate down to 7.4 pct, which is far better than July gathering, Fed should be comfortably placed on the issue of tapering. Now it is the size of scaling down of Fed's asset purchase that should dominate the talk, as market should be well aware that tapering is around the corner. US Economic data will have more say towards market moves. Weather it is September or December does not matter, as tapering is imminent and delay will only provide more space to borrowers to adjust. 

Do keep a close watch on US 10-year bond yield hovering around 2.92 pct. Break of 3 pct physiological level should bring some spark in the market. I am not sure that what Jackson Hole Summit has to offer in the absence of Fed Chairman Ben Bernanke who is not too keen about this gathering. Overall conclusion is that USD will surely benefit from current development and even minor economic gain would favour Greenback.

GMT 3:02 - EURO @ 1.3336 = Euro may not find easy to surpass 1.3360-80 zones, as break of 1.3305 will pave way for a test of 1.3275-80 levels or else 1.3410

GMT 3:08 - GOLD @ $ 1364 = Top of the day around $ 1367-69 levels with Stops $ 1375, as seek risk for  drop towards $ 1352-54. Break of $ 1345 will encourage for more losses. 

GMT 3:15 - GBP @ 1.5599 = Cable should find top around 1.5625-35 zones and move beyond 1.5660-80 looks difficult for more gains. On the downside break of 1.5570-80 is required for a test and break of 1.5540-50 levels.

GMT 3:19 - AUD @ 0.8981 = Better Chinese PMI gave some breathing space, but needs to surpass 0.9025-50 for 0.9080, which may not happen and could drop to res-test 0.8950-70 zones.

GMT 3:23 - JPY @ 98.16 = Looking for a test, but needs break of 98.50 levels that would encourage for a visit to 98.85-90 zones or else to move below 97.80 would encourage for a test of 97.55-60 zones.

DISCLAMER : The commentary/information presented is not intended for trading purpose. The idea is to exchange views with the members/readers. Therefore, I accept no responsibility or liability for any losses incurred due to position taking.