I am an avid observer of the fx market.
Recently, the talk of the Fed Tapering has resurfaced again.
Logically, when the Fed tapers (or just talk of taper) will lead to the strengthening of the USD across the board. The USD has indeed strengthened against the AUD, GBP and JPY, but, it has weakened against the EUR.
Out of all pairs of fx, I would have expected EUR/USD to weaken significantly. However, it has done the reverse.
This shows that the market participants may have felt that the European economy has stabilized and perhaps strengthened. On the other hand, it also tells me that the Fed can do whatever it wants and as it wishes. Indeed, the Fed has, in my opinion, crushed the Gold and Silver markets...and to be followed by the Oil market...to give the impression that there is no fear of inflation.
It appears that the Fed is the 'Special One' and the 'Almighty One'. And, it leads me to conclude that even with the Fed Tapering, the US markets can continue to move higher.
Yesterday, December 6, 2013, after the 'excellent' job number, the chance of a Fed Tapering has greatly increased. However, the Dow and the S&P continued to surge--surpassing the 16,000 and 1,800 levels.
The Fed will Taper (to instill confidence in the USD) and the markets will continue to climb. Citi has a target of 1,990 for the S&P,
http://www.zerohedge.com/news/2013-11-29/citi-skeptical-sustainability-uptrend
But, I think there are risks ahead that we must be aware of. The 10-year UST has climbed above the 2.8% yield.
While we continue to party, just be aware of the hangover that follows.
