The Wall Street Journal assumes that the USA and its currency are saved. The major reason for such thoughts is the expected tapering of the Fed’s accommodative policy. Is the US economy reloaded? Does the US Dollar really have nothing to worry about? Let’s ponder on these questions together with Masterforex-V Academy.
The Fed Says Enough Easing?
According to The Walls Street Journal, the extreme measures practiced since 2008 are not effective anymore. In late May 2013 Ben Bernanke hinted at the possibility of tapering the Fed’s quantitative easing since there were reasons to assume that the Fed’s massive printing of fiat money finally started paying off. The Feed seems to be about to start cutting down on bond purchases. This may cause an increase in bond yields. On top of that, the rate of unemployment is declining while the emerging currencies are showing weakness against the dollar.
Still, it is not that simple. On the one hand, the Fed is obviously trying to change its monetary policy. On the other hand, nobody can be sure that the US economy has fully recovered from the recession. On top of that, Bernanke himself is afraid of a speculative bubble of the QE program continues without changes. At the same time, the Fed keeps buying assets at the same rate despite all the statements and fears. At this point, the Fed’s policy helped those assets to avoid soap bubbles. Bit what happens next?
Central Banks As Lifebuoys for Global Economy
According to the experts, central banks will act as the major lifesavers for the global economy. Actually, it means tougher regulation for the entire global financial system. It is fine when the markets are free. However, central banks have to act as regulators rather than observers in order to secure the global economy and financial system against major crises and deep recessions.
They are convinced that the US Dollar won’t collapse even in the worst-case scenario. Moreover, they say that deflation is the biggest threat at this point.
Dollar Won’t Collapse… It Would Be Better If It Did
This threat is mentioned by those experts who assume that the Fed’s policies are inefficient. They say QE has been a dangerous experiment while its tampering may turn out to be even more dangerous. They are convinced that the very sought that fiat money can cure a diseased economy is felonious rather than ridiculous. They say the negative consequences of the QE and its tapering will hit the USA and the EU, the southern part of which is coming closer a fiscal cliff.
This is not the first time the Fed affects the entire global economy with thoughtless steps. For example, in 1994 it raised the dollar rate by 300 points, which resulted in a financial crisis in Asia and a financial “earthquake’” in Latin America.
At this point, the Fed looks as determined as in 1994. The Fed seems to be reluctant to support the US and global economy anymore. They say we shouldn’t forget that this was a temporary measure. Well, it was a thoughtless measure as well. Tapering a thoughtless stimulus is dangerous.
Masterforex-V Academy on USD Prospects
The charts below, courtesy of Masterforex-V Academy, reflect the current state of affairs in the market of EURUSD:
The current situation in the market is uncertain. This is reflected by senior timeframes.
D1 chart shows us 3 different moves. Each of them is a retracement. In its turn, the move started on March 25th (to the right of the blue arrow) is not of an impulse nature as well.
Looking deeper into each of the moves by means of trading volume, we should pay attention to the volume clusters located around 1.3180.
H4 chart. Over the last 6 months there has been a fight for 1.3080 – 90, with new highs and lows. In mid June, when traders started trading September futures on EURUSD, the chart indicated a sharp decline (the red arrow) with the max volume cluster around 1.3050. However, on July 10th-11th the downswing was stopped abruptly. Then the price initiated a recovery, with the biggest volume cluster around 1.3250, which is currently the key level to determine the future scenario.
It should be noted that a fresh volume cluster has just been accumulated above the mentioned 1.3180 level (D1 chart). Another interesting thing to monitor is the price reaction to 1.2750 and 1.3400.
H1 chart. A rally (the green markup) will encounter resistance. The volume has been shifted up –from 1.3080 to 1.3250. it is obvious that an attempt to reverse the trend from 1.3400 (the blue arrow) has failed so far. There is a volume cluster around 1.3250.
The bottom line: Taking into account all the information mentioned above, we would recommend reducing exposure in mid- and long-term perspective.
