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9 Sep 2013
Taper light may be what’s in store in September based on data and trading action
FXstreet.com (Barcelona) - Common sense – given certain looming events – says the Fed will begin their tapering program in September, but will do so gently just for the sake of getting it started.
FOMC has recent bullish data to taper but enough concerns to do so gently
Here are the key points that traders and analysts must process when considering tapering:
• Bernanke is rumored to have a verbal agreement with his more hawkish colleagues that tapering WILL start in September. This rumor has been out there for weeks, before Friday’s crummy jobs report, but also before the stream of positive data that occurred for the weeks leading up to Friday;
• Bernanke will be leaving his post soon. Common sense and more chatter tells one that Ben will not let the new Chairman have the implementation of tapering – and whatever ramifications that may carry with it – be their first order of business. Plus, it would likely leave Bernanke feeling he left his post with a grade of incomplete if he doesn’t at least oversee the beginning of the tapering program;
• All that being noted, Bernanke also does not want to be known as the bad guy who sent the economy back into a tailspin – so anything they start in September will likely be just on the other side of symbolic. Strange trading action in the euro recently (possibly signifying burgeoning concerns over there), the somewhat sketchy nature of Chinese growth as it has been reported and the very modest nature of the economic growth here in the US all provide plenty of reason for the Fed to be very careful about the implementation of any tapering plans;
All of this points to a very modest tapering effort beginning in September – if any one begins at all. There is no indication in the facts or the rumors that the Fed’s tapering will be over-zealous in nature.
Technical observations lending to this outlook
• In favor of tapering:
o The DXY’s failure to break down on Friday’s weak US jobs report is the most recent and obvious piece of evidence. The DXY finished above the midpoint of the day’s trading range Friday – which technicians view as bullish considering the negative news.
o The same bullish failure to post a bearish candle Friday given the built in excuse to do so (in the form of the bad jobs report) by the 10-year Treasury Note Yield is piece of tapering evidence number 1b.
• In favor of tapering light or no tapering at all:
o The equity markets’ refusal to really crumble recently – modest pullbacks notwithstanding – is a big sign that institutional investors either don’t believe the Fed will taper at all or that they will very gently ease their way into their efforts to return to normalcy. Given the fact that yields and the DXY are not tumbling precipitously, the chances of no tapering at all in September would seem to be minimal.
Summing up
Overall, there appears to be a strong possibility of the Fed beginning their tapering program in September – it’s now just a matter of how aggressively they go about their business. The evidence seems to suggest there’s also a good chance they enter this phase of their open market actions cycle with great caution.
FOMC has recent bullish data to taper but enough concerns to do so gently
Here are the key points that traders and analysts must process when considering tapering:
• Bernanke is rumored to have a verbal agreement with his more hawkish colleagues that tapering WILL start in September. This rumor has been out there for weeks, before Friday’s crummy jobs report, but also before the stream of positive data that occurred for the weeks leading up to Friday;
• Bernanke will be leaving his post soon. Common sense and more chatter tells one that Ben will not let the new Chairman have the implementation of tapering – and whatever ramifications that may carry with it – be their first order of business. Plus, it would likely leave Bernanke feeling he left his post with a grade of incomplete if he doesn’t at least oversee the beginning of the tapering program;
• All that being noted, Bernanke also does not want to be known as the bad guy who sent the economy back into a tailspin – so anything they start in September will likely be just on the other side of symbolic. Strange trading action in the euro recently (possibly signifying burgeoning concerns over there), the somewhat sketchy nature of Chinese growth as it has been reported and the very modest nature of the economic growth here in the US all provide plenty of reason for the Fed to be very careful about the implementation of any tapering plans;
All of this points to a very modest tapering effort beginning in September – if any one begins at all. There is no indication in the facts or the rumors that the Fed’s tapering will be over-zealous in nature.
Technical observations lending to this outlook
• In favor of tapering:
o The DXY’s failure to break down on Friday’s weak US jobs report is the most recent and obvious piece of evidence. The DXY finished above the midpoint of the day’s trading range Friday – which technicians view as bullish considering the negative news.
o The same bullish failure to post a bearish candle Friday given the built in excuse to do so (in the form of the bad jobs report) by the 10-year Treasury Note Yield is piece of tapering evidence number 1b.
• In favor of tapering light or no tapering at all:
o The equity markets’ refusal to really crumble recently – modest pullbacks notwithstanding – is a big sign that institutional investors either don’t believe the Fed will taper at all or that they will very gently ease their way into their efforts to return to normalcy. Given the fact that yields and the DXY are not tumbling precipitously, the chances of no tapering at all in September would seem to be minimal.
Summing up
Overall, there appears to be a strong possibility of the Fed beginning their tapering program in September – it’s now just a matter of how aggressively they go about their business. The evidence seems to suggest there’s also a good chance they enter this phase of their open market actions cycle with great caution.