As The Fed's Board of Governor's meeting closes, expectations for tapering continue to drown in uncertainty. Will they, or won't they? Market players, especially forex traders, could have been ignoring this issue if only it didn't have the huge impact it's been showing these days. The impact of the issue is undeniable and many analysts predicted it will continue to do so until an exact decision is out.

As The Fed's Board of Governor's meeting closes, expectations for tapering continue to drown in uncertainty. Will they, or won't they? Market players, especially forex traders, could have been ignoring this issue if only it didn't have the huge impact it's been showing these days. The impact of the issue is undeniable and many analysts predicted it will continue to do so until an exact decision is out.

Tapering refers to The Fed's would-be policy to reduce its stimulus program. The current stimulus was arranged in order to support US economic recovery. But on the other hand, it pushes inflation higher. What's more important, stimulus program underlined The Fed's doubt on US economic condition. Therefore, tapering could be read as The Fed's confidence on US economic recovery. In the history of forex market, such confidence usually paid up. Market player loves confidence, and this love could lead to stronger greenback.

The latest gossip mentioned that due to the under-performing economic recovery, tapering will not be done this month. Rising uncertainties slowed USD in the beginning of this week. Nonetheless, yesterday afternoon (11/12) Bloomberg reported that USD snapped from its decline as US politicians reached budget deal during their negotiations.

Kengo Suzuki from Mizuho Securities co. mentioned that one of the reason why tapering postponed back in September was budget uncertainties. Because of that, budget deal may push The Fed to get on with tapering. Thus, the greenback starts to strengthen. Or, do they? a few hours later new reports come out and mentioned that the dollar fell against euro and yen, although come out the winner against the other currency, mainly AUD.
Impact
So, will tapering be done this month or much later? The answer may be known only by God and The Fed. However, we could guess its impact on major pair that was being traded directly against USD, particularly EUR, GBP, and JPY.

EUR/USD will continue on its ups and downs so long as tapering stays 'issue'. But Euro will enter its decline period against dollar if tapering happen while no good news come out from Euro Zone about its banking system. Moreover, Euro is in high these days, and haven't meet turnover point. On the opposite, if tapering doesn't happen soon, then USD is possibly going to slow down.

Sterling has murky future as long as the sword of Tapering hangs above GBP/USD. Latest UK economic report shows growing confidence, but tapering increases the potential of GBP/USD decline, mainly if UK CPI report is unsatisfactory. It must be noted that CPI (Consumer Price Index) shows prices of goods in a country on certain period. High CPI will push Central Bank to increase benchmark interest rates, which in turn influence exchange rates to go higher. CPI usually have strong impact in forex market, so be careful with this one. On the other hand, sterling can breathe easier if tapering doesn't happen sooner or if UK announces good CPI score.

Apart from being affected by tapering, USD/JPY is also influenced by Japenese economic fluctuation post-Abenomics. That's why market will tend to make decision based on what's going on in Japan, whether tapering happen or not. Good economic reports from Japan will certainly support JPY; but if market feels unsure, then there is a high potential that JPY will weaken. Tapering increases market's trust on the US, and bad side effect for US trading partner like Japan. By itself, JPY position will be better if tapering doesn't happen.

We could conclude from these observation that the impact of tapering may very well be not as big as people say it's going to be. There are various factors influencing major pair trading. So, you shouldn't be glued on waiting for The Fed's announcement; examine the other fundamentals too.