Market split on to taper or not to taper

Sterling trades stronger in European trading ahead of the all-important FOMC this evening, with a robust employment report from the UK, which – in my opinion – saw the reversal and rejection of the 0.8470 level in EUR/GBP.

The unemployment level dropped to 7.4% from 7.6% as the claimant count came in at -36.7k.

I’m starting to see a theme that I feel will increase in 2014 as central bankers do all they can to weaken their own currencies. Although the market hasn’t reacted to the MPC minutes that had a reference to the proud pound (stating “sterling strength maybe hurting the economic recovery”), this follows the continuous concern from Australia and Canada about the effects of the exchange rate on their economies. If the commonwealth central banks are successful in their plight then I suspect 2014 will bring out the ECB members on the single currency.

All eyes will be on the FOMC policy announcement tonight at 7pm, followed by Fed Chairman Bernanke’s statement at 7.30pm. The inflation data released yesterday that I highlighted did nothing to help a taper conclusion, with a 0% reading as the pro-taper camp highlighted lower energy prices for the benign reading.

I think the Wall Street Journal sums up the market quite perfectly:

1) Will they taper?
2) What do they cut?
3) Do they fiddle with the forward guidance?
4) What are the economic projections?
5) How will Bernanke handle his swan song?

EUR/USD

Supports 1.3710-1.3675-1.3615 | Resistance 1.3815-1.3835-1.3880

USD/JPY

Supports 102.60-102.20-101.65 | Resistance 103.45-103.95-104.30

GBP/USD

Supports 1.6260-1.6215-1.6180 | Resistance 1.6400-1.6465-1.6500