A Long Time Coming

STAGGERING DECLINES - Interesting price action into year end. I had warned that trends had a tendency to push in the final days of December. And yet, we have seen a very nice reversal in US equities. Of course, as you all know, I have been looking for a major correction in the stock market for some time, and just thought we wouldn't see it play out until January. But in truth, I wouldn't get too excited just yet. Especially with tomorrow's event risk lying in wait. Other trends have continued to push. The US Dollar remains well bid, while oil continues to drop. On such ferocious trend - and probably the most intense out there right now, is the Ruble. Now I know the Ruble and oil have been falling together. But if you look at the technicals across all major timeframes, the Ruble is probably one of the most oversold readings I have ever seen. The pace of declines has been staggering. To think we are getting close to a devaluation in a currency of some 50% in one year!! On a pure technical basis, I would say something has to give now that USDRUB has broken 60, and I would be on the lookout for a sharp reversal, even with all the fundamentals that are currently stacked against the Ruble. But what fundamental catalyst could open a rally in the Ruble. There are many catalysts of course. One such catalyst would be a recovery in oil prices. But another catalyst, which I think the markets should be prepared for, is tomorrow's Fed rate decision.

FED IN PLAY - From a US economic data perspective, everything is pointing to the Fed removing the 'considerable time' language from the monetary policy statement and signaling a sooner than later rate hike. But it may not play out this way, and this would be a very welcome development for the Ruble. Given the ongoing stress in global markets, the Fed may once again alter its guidance. The Fed has already been hinting in recent months that external factors are weighing more on policy direction. And we may be at a point where it is no longer about US employment or US inflation, and more about economic data abroad. It is a radical notion when you think about how far the Fed is deviating from its mandate here. Nonetheless, this may be where we are headed. So if the Fed leaves policy unchanged and offers no indication of moving closer to a hike, this could open the door for a broad based rally in currencies against the Buck, while at the same time opening another wave of buying into equities. Now, I wouldn't expect either a currency rally or equity rally to have any real legs on such a Fed decision. But it could definitely impact the short-term direction in markets. Once again, I am a US Dollar bull and US equity bear. But I can definitely see a scenario where the Fed is still dovish tomorrow and this triggers such a response from markets. So if you think we can't see equities rallying into the 2014 close after this latest drop, think again. It can happen. It might not....but it most certainly can.