Quantitative easing Program Ends in the US

Quantitative easing Program Ends in the US

By: James Ansher | Where To Trade | On:30-10-2014 07:59
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 Key Highlights

  • Decision widely anticipated
  • FED ends QE as the US economy strengthens
  • Putting the End of QE in Perspective
  • Other countries anticipated to follow

 

The End of the QE3

Yesterday during the New York open the US Federal Reserve announced the end of the QE3 program. This announcement had been widely anticipated by the majority of economic analysts and we saw an immediate reaction in the USD pairs. We have witnessed the USD strengthen across the board on all the major pairs. The EURUSD has plummeted over 200 pips since the announcement. The cable is 180 pips down and now retracing. The USDJPY is 100 pips up and the USDCHF pair is up 150 pips. Gold has shed some 3000 points whilst silver has shed 500 points.

 

Where To Trade - XAGUSD M30

Silver prices plummet, 30 Min Chart

 

Yesterday during New York, markets were eagerly looking at the FED for the confirmation of the end of the third round of quantitative easing. The USD had been selling off partly based on the speculators anticipation that the FED may decide to hold off the cessation of QE3 and the bearish anticipations for the GDP reading of the third quarter. We had seen the EURUSD rally from last week’s low at the 1.261 levels to the 1.276 levels in the mid of New York. However soon after the news confirmation, the  USD bulls took control of the prices temporarily muting the bearish sentiments overhanging the USD as the price for the EUR USD plummeted to a near free fall with very little resistance

London today opened to a fresh round of selling the dollar although caution is returning to the markets as traders are weary of catching the trough or being whiplash by the GDP readings that are anticipated in the New york session.

 

Putting the end of QE in perspective

This decision will go down as a historical step for the forex market and also for the global  economy.  Six years ago, the FED announced the outright quantitative easing program, Q1, to support a struggling US economy following the 2008 financial down turn.

Soon after QE1 the other central banks soon started pumping money into their economies to counter the weakened dollar and similarly, to avoid a depression. The FED soon realized that QE2 and QE3 would be needed in order to fully resuscitate the US economy. The last six months has been an extraordinary period in the forex world we have had a period of ultra-low interest rates in the bulk of the developed economies coupled with a variety of stimulus programs that aimed at stimulating financial growth by injecting liquidity into the real economy.

 In the US the QE measures coupled with low interest rates have worked. The US economy in a well angled growth trajectory. The ending of QE in US as a giant in the global economy marks the beginning of the end of an era.

 

Actionable insight

We anticipate that other central banks will similarly start to tighten their monetary policy. The UK is first on this list; sentiments form the B.O.E already indicates that they perceive the UK’s economy is quite strong.  When the BOE tightens its policy this will be a perfect signal to go long on the pound.

For now however, we know that the Euro zone is actually considering pumping more liquidity into its economy which is a bearish signal for the Euro. This setup provides us with a perfect pair to go short on against the other currencies as they begin to strengthen due to tighter monetary policies. 

James Ansher

James Ansher

When there is a will there is a trade

A successful Forex trader and expert advisor

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