NZD/USD holds back in neutral territory territories post-Fed spike

• NZD/USD bulls reach up into neutral territory. 
• Bears will be looking to a correction of the sharp hourly bullish impulse. 
• Fed makes no great shakes and tapers as expected. 

NZD/USD is on the front foot and higher by nearly 0.9% following a rally from 0.7103 to a high of 0.7173 the highs on the approach to the Asia open. The markets were fixated on The Federal Reserve on Wednesday that flew past without anything unexpected. 

Consequently, the Kiwi is little changed from where it was at yesterday’s close but is higher on the day following a slide in the greenback after the Fed’s tapering announcement. ''Tapering doesn’t reduce liquidity but it does slow the pace of growth,'' analysts at ANZ bank explained. 

''As such, Fed policy will be “less stimulatory” than contractionary. US bond markets did not react initially, but yields are now rising and that could put the bid back into the USD – this was a positive step and should sustain rather than crush the US economy.''

Fed main takeaways

• Meanwhile, the FOMC announced a tapering of its QE programme was followed up with the details as follows:
• A reduction in asset purchases will begin this month at a $15bn pace, split between $10bn treasuries and $5bn MBSs.
• There was no interest rate guidance, and the decision was a unanimous 11-0.
• The Fed state that the pace would alter as necessary.
• The statement reiterate that inflation pressures remain "elevated," but softened the language about it being transitory to "largely reflecting factors that are expected to be transitory" (versus "largely transitory" in September).
• The Fed repeated that the economy and the employment situation have "improved in recent months" but Covid has slowed the recovery.
• Maximum employment is yet to be achieved.
• "Policy will adapt appropriately" to those dynamics he said.

As for data, the US services ISM in October surprised with a rise to a record high of 66.7 (est. 62.0, prior 61.9). In addition to further gains in prices paid (to 82.9 from 77.5), new orders rose to 69.7 (from 63.5) - the highest reading since 1997, and business activity rose to 69.8 (from 62.3). 

Ahead of this week's Nonfarm Payrolls, ADP private-sector employment in October at 571k beat expectations (est. 400k), although September was downgraded by 45k to 523k. this came as a welcoming prelude to the key event on Friday.

NZD/USD technical analysis

The focus is now on the downside following the rally into higher liquidity above and a correction into the 50% mean reversion location can be expected in surpassing the 38.2% Fibo target as first potential stop.