Asian Open: Fed Announce ‘Flexible’ Taper Plan, EUR/JPY Ready to Pop?
Matt Simpson November 3, 2021 5:49 PM
The famous taper has been announced, although the Fed left plenty of wriggle room to change its course - although they did acknowledge the risks of high inflation.
- Australia's ASX 200 futures are up 37 points (0.5%), the cash market is currently estimated to open at 7,429.70
- Japan's Nikkei 225 futures are up 20 points (0.07%), the cash market is currently estimated to open at 29,540.90
- Hong Kong's Hang Seng futures are up 72 points (0.29%), the cash market is currently estimated to open at 25,096.75
- China's A50 Index futures are up 39 points (0.25%), the cash market is currently estimated to open at 15,451.09
UK and Europe:
- UK's FTSE 100 index fell -25.92 points (-0.36%) to close at 7,248.89
- Europe's Euro STOXX 50 index rose 13.39 points (0.31%) to close at 4,309.61
- Germany's DAX index rose 5.53 points (0.03%) to close at 15,959.98
- France's CAC 40 index rose 23.62 points (0.34%) to close at 6,950.65
Wednesday US Close:
- The Dow Jones Industrial rose 104.95 points (0.29%) to close at 36,157.58
- The S&P 500 index rose 29.92 points (0.65%) to close at 4,660.57
- The Nasdaq 100 index rose 172.009 points (1.08%) to close at 16,144.50
Don’t confuse tapering with balance sheet reduction
- The Fed are set to taper at $15 billion per month ($10 billion reduction in treasuries and $5 billion of mortgage-backed securities. Currently they are purchasing $120 of assets per month.
- Level of tapering is flexible – but at the current rate it still means the Fed’s balance sheet will still reach $9 trillion next year.
- The Fed can be patient on rates, although they’re ready to act if need be (and the risks are tilted towards higher inflation).
- Powell does not think the Fed are behind the curve, but it would be premature to raise rate today.
Whilst the Fed are indeed tapering, it does not equate to balance sheet reduction as they are simply slowing down the rate of their asset purchases. Their current rate of $120 billion of purchases are trimmed by $15 billion to ‘only’ $105 billion of QE ($120bn – $15bn = $105bn). The following month, purchases would drop to $90bn assuming they don’t use their ‘flexibility’ to change the rate of tapering. At the current rate of -$15 billion it means they’re currently on track to cease purchases from June 2022. And then maybe they might start to think about raising rates.
Wall Street were clearly happy with the outcome given their response of breaking to new highs, as plenty of liquidity shall remain in the system. The Russell 2000 surged 1.8% to a new high, with the Nasdaq leading large caps higher with a 1% gain. The S&P 500 and Dow rose 0.6% and 0.3% respectively.
The ASX 200 made minced meat of any short bias we had yesterday. It gapped higher in the open and therefore failed to trigger the required break of the prior day’s low or present a bearish setup beneath resistance zone. A bullish outside day formed at the 100-day eMA and futures point to a higher open today, so we switch to a bullish bias for this session. Key support levels today include the 7395 – 7400 zone and 7357.
ASX 200 Market Internals:
ASX 200: 7392.7 (0.93%), 03 November 2021
- Materials (1.44%) was the strongest sector and Information Technology (-0.19%) was the weakest
- 10 out of the 11 sectors closed higher
- 3 out of the 11 sectors outperformed the index
- 140 (70.00%) stocks advanced, 48 (24.00%) stocks declined
- 68.5% of stocks closed above their 200-day average
- 62.5% of stocks closed above their 50-day average
- 57.5% of stocks closed above their 20-day average
- + 9.3%-AMP Ltd(AMP.AX)
- + 6.71%-Orocobre Ltd(ORE.AX)
- + 5.43%-Pilbara Minerals Ltd(PLS.AX)
- -15.02%-Tyro Payments Ltd(TYR.AX)
- -3.88%-Redbubble Ltd(RBL.AX)
- -3.59%-Uniti Group Ltd(UWL.AX)
Forex: Dollar underwhelmed, NZD finally embraces strong employment report
The lack of any hawkish twist (or tapering surprise) weighed on USD, pushing the dollar index (DXY) -0.24% lower. It is by no means an aggressive selloff, but the weaker dollar did allow NZD to finally rally and enjoy New Zealand’s strong employment report. NZD was broadly higher, rising 0.56% against the dollar and 0.62% against the yen.
AUD/USD held above the monthly pivot, meaning no breakout of a bear flag was seen. And its bullish engulfing candle on the four-hour chart tested the lower bound of the 0.7450 / 76 resistance zone. Given the dovish RBA and underwhelmingly hawkish Fed meeting we prefer to step aside for now.
We have been tracking the corrections on yen pairs and it appears they may be nearing completion. CAD/JPY is holding above 91.18 support although we may want to see OPEC+ out the way before expecting it to break higher. GBP/JPY formed a bullish engulfing candle at 155.55 support so remains of interest. But today we’ll look at EUR/JPY as it looks keen to move.
EUR/JPY’s retracement stalled at the 38.2% Fibonacci level and 20-day eMA, and yesterday produced a bullish engulfing candle. The four-hour chart shows several lower wicks holding above 131.50 and bullish momentum is apparent on the most recent candle as they accelerate away from the 100-hour eMA.
Bullish pinbar appeared on silver charts, although its correction was deeper than we’d have liked so we would prefer to step aside for now. That said it does appear to have decent support at $23, so we’ll continue to monitor it.
Gold accelerated lower and pierced 1760 support. Our bias remains bearish below 1780 after its break of its bullish channel last week.
A build-up of US inventories saw oil fall over 3%, with WTI enduring its most bearish day in over 3-months. We are finally in a corrective phase after monitoring this very potential over the past 2 or so weeks. As they say, “tops are a process, bottoms are an event”.
Up Next (Times in AEDT)
How to trade with FOREX.com
Follow these easy steps to start trading with FOREX.com today:
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.