On tapering, JPY and AUD are vulnerable; on No-tapering,

Markets are highly anticipating the FOMC statement. To taper or not to taper? The dollar is set to rise on a tapering decision or fall on a no-taper decision.

Which currencies are more vulnerable to a taper decision? And which are well positioned to take advantage of a no-taper decision? We’ll try providing quick answers.

We think that there are better chances of tapering than not. Here are 11 reasons for QE tapering. In any case, the market’s reaction is expected to be strong and provide opportunities.

News out:  Fed announces $10 billion QE tapering with softer forward guidance – USD jumps but hesitate

Live blog:  Bernanke explains the sweet taper

Analysis:  Sweet Dectaper is still a taper – USD has the upper hand

In case of a No Taper decision

1. NZD: The kiwi also enjoys a strong economy and the central bank is planning rate hikes. In addition, it is a risk currency. More USD printing is certainly positive for the currency. The strongest reaction could be here.
2. GBP: The British economy is doing well, and we received another important reminder with the fresh publication that unemployment in the UK fell to 7.4%. So far, the pound had a hard time to gain. A no-taper decision might release some steam.
3. CAD: The Canadian dollar has been on the back foot, despite a low unemployment rate. One of the biggest concerns has been very low inflation. With more money flowing from the US, Canada’s all important trade partner, the Canadian dollar could reverse recent falls in a relief rally.
4. EUR: The common currency has been amazingly stable of late and showed a lot of resilience. While it may have run out of steam, a no-taper decision could allow it to run a bit higher.

In case of a “Dectaper”

1. JPY: The yen has suffered another downfall due to the talk of more stimulus from the Bank of Japan. However, USD/JPY didn’t make a convincing move upwards. A taper decision would not only allow a bigger breakout, but also push US yields higher. There is a nice positive correlation between US yields and USD/JPY.
2. AUD: The Australian dollar arrives to this decision in a vulnerable moment, after the governor of the central bank laid out a numerical target for AUD/USD: 0.85. With an economy already in a not so positive transition that is considered a “risk currency”, a reduction of bond buys in the US will hit Australian shores quite quickly.
3. CHF: The Swiss franc is still somewhat of a “safe haven” currency that could see demand in times of risk aversion. With more risk, the franc could actually gain or at least suffer only minor drops against the dollar in case of a taper decision.

It’s important to note that the market’s full reaction takes time to materialize and that the decision could come with a counter move: a decision to taper could come with a sweetener, and a decision not to taper could be accompanied with a thick hint of tapering in January.

See the 5 different scenarios for the FOMC decision.