An Aussie Spanking Is Preferred Over A Timid EURO

It seems that every time that Capital markets start to feel optimistic this so-called US recovery disappoints. Yesterday's disappointing US data (weekly claims, Philly Fed and housing starts) are renewing the debate whether tapering Fed bond buying in the second half of this year would be premature. An end to stimulus would probably see the Fed hiking the Fed Funds rate. A current concern is that with tapering the market seems to automatically link and end to QE with higher borrowing costs. In this scenario it would not necessarily mean the end of either the current risk rally or even US equities.

Bernanke and his fellow policy making cohorts will need to improve their communication skills and convince the market that "tapering" does not necessarily mean further tightening – it actually means less accommodation. The trick is to make the clear distinction between the expectations of an end to QE and the expectations of the first official rate hike. For the FI dealers this...