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Flash: It isn’t about when the Fed “tapers” - Societe Generale

FXstreet.com (Barcelona) - Kit Juckes, Global Head of Currency Strategy at Societe Generale believes that much of the market are focused on the wrong aspect of Fed policy and its prospective withdrawal.

He begins by commenting that when the Fed will slow its Treasury purchases will be data-dependent and the Funds rate may be less important in policy-making going forwards. He sees that those are the direct takeaways from the FOMC minutes but the market tells us something different. He writes, “The prospect of low rates for a long time accompanied by even a tepid economic recovery encouraged investors and traders to buy yield and sell volatility. Those positions are very crowded and since the rate outlook is now uncertain (i.e., volatile) and a reduction in accommodation is inevitable, both positions will continue to be unwound over time.” He believes that investors may see Treasuries bounce but if they do, they are a sell while the dollar is a buy. Further, he adds that commodity sensitive currencies and EMFX are vulnerable with Asian currencies to the fore today and the credit rally, so dependent on both low volatility and low rates, is facing a significant correction.

EUR/JPY broken support level

The JPY has strengthened across the board along with the dollar in a typical risk aversion play while stock markets have plummeted across the globe following a series of economic data yesterday. The pair has pulled back below key 131.10 daily support levels.
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