Although the decision to continue tapering and reduce QE asset purchases by another $10 billion at today’s meeting was widely expected, the news appears to have caught many by surprise, sparking a big rally in USD and sending gold and paper majors, including AUD, NZD, CAD and JPY sharply lower along with US stocks. The Fed blamed recent softness in economic numbers on disruptions from winter storms and drive on with tapering indicating that is plans to continue reducing QE purchases at a measured pace but that it could change its plans depending on employment and inflation conditions (same as the last two meetings). The Dow fell nearly 200 points at one point but then rebounded into the US close to finish down about 100 points on the day and sending downward momentum into todays Asia Pacific session. What is most interesting about this market action is that beyond tapering, the outlook appears more dovish. The Fed dropped 6.5% unemployment as a threshold rate for action and indicated its concern about inflation running below 2%. Meanwhile expectations among FOMC members on the first interest rate increase shifted even more firmly into 2015 and the lone dissenter, Minneapolis Fed’s Kocherlakota was on the dovish side, expressing concerns about low inflation. Defensive plays have been hit particularly hard on the news with Gold falling over $25.00 on the day while JPY and CHF have rapidly fallen to the bottom of the league table. Not far behind have been the resource currencies, particularly NZD, CAD and NOK, with AUD and SEK falling at a slower pace. NZD appears to have kicked off a correction of its recent drive toward a 52-week high but may remain active through today’s GDP report. AUD was close to a breakout but now may not quite be ready for prime time. CAD had been on the rebound up until the Fed news but since then has done a dramatic about-fact USDCAD rallying up over $1.1200. The next few hours may indicate if this is the start of a new upleg or a bull trap euphoric peak. Even despite the headwind of a rising USD, a number of commodity markets have been stronger today. WTI Crude oil has shrugged off another big inventory build and broken out over $100.00. Although it continues to close the gap on Brent Crude as its political risk premium evaporates, wheat continues to climb, gaining 3% today and indicating that Ukraine concerns may be in the background but have not gone away completely. Economic News Significant announcements released overnight include: US QE3 decision $10B taper to $55B as expected US interest rate decision 0.25% no change expected FOMC Member projections for 2014 GDP 2.8-3.0% from 2.8-3.2% Unemployment 6.1-6.3% from 6.3-6.6% PCE inflation 1.5-1.6% from 1.4-1.6% Poll of FOMC members on first rate increase 2014 1 down from 2 2015 13 up from 12 2016 2 down from 3 US crude oil inventories 5.8 mmbbls vs street 2.7 mmbbls US gasoline inventories (1.4 mmbbls) vs street (1.5 mmbbls ) UK jobless claims (34K) vs street (25K) vs previous (27K) UK unemployment rate 7.2% as expected UK 3M employment change 105K vs street 110K vs previous 193K UK Bank of England minutes 9-0 in favour of maintaining current policy UK budget speech raised 2014 GDP forecast to 2.7% from 2.4% Upcoming significant announcements include: 8:45 am AEDT NZ Q4 GDP street 3.1% vs previous 3.5% 8:30 am GMT Switzerland interest rate street 0.00% no change expected 8:30 am EDT US jobless claims street 322K 10:00 am EDT US Philadelphia Fed street 3.2 vs previous (6.3) 10:00 am EDT US existing home sales street 4.60M 10:00 am EDT US leading index street 0.2% 10:30 am EDT US natural gas street (60 BCF)

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