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Forex Technical Report

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Fed Statement Does Nothing to Stop Demand for Higher Risk Assets

Thu, Nov 5 2009, 06:06 GMT
by James Hyerczyk

ForexHound.com

The Fed FOMC committee decided to leave interest rates at historically low levels and issued a statement that said nothing to deter demand for higher risk assets.  It is now up to aggressive traders to take advantage of the thirty day free pass issued to them by the Fed’s inaction.  At this time the Fed is no closer to raising interest rates than it was last month.  This is potentially bullish news.  The currency traders recognized it, but equity traders seemed hesitant.

Stock index futures finished higher, but in the low end of the range.  The inability to make a new high for the day after the Fed’s rather dovish comment leaves one suspect as to whether demand for equities has run out of gas.  Today’s upside action could not even drive the December E-mini S&P 500 to its 50% retracement price at 1062.50 before it sold off.  Maybe traders are tired or maybe money managers closed up shop for the rest of the year on October 30th.  Nonetheless, the statement from the Fed has the potential to drive this market higher.  If there isn’t a follow-through to the upside tomorrow, then look out below.

Treasury futures finished lower as interest rates rose slightly.  Chicago financial market traders are betting that the Fed will raise rates in June 2010.  The weakness in the Treasuries was felt hardest in the December Treasury Bond.  Bonds and Notes are indicating that the end of the Fed asset purchasing program is going to gradually ease rates higher.

December Gold finished higher but there was evidence of selling pressure as this market neared $1100.00.  Even as the Dollar weakened throughout the day, gold could not take out its high posted early in the morning.  Look for a possible pull-back to the old top at $1072 before this market mounts another rally.

The U.S. Dollar finished lower versus all the majors except the Yen.  Demand for higher yielding assets pressured the greenback.  The news from the Fed should encourage more of the same tomorrow.  If there is any hesitation in the Dollar to break, then look for the start of a fast short-covering rally.  The Bank of England and the European Central Banks meet tomorrow.  Look for interest rates to remain the same.  The ECB isn’t expected to say much but may criticize the value of the Euro.  The Bank of England may extend its asset buyback program.  This may catch bullish Pound traders by surprise.

Speculators have been driving crude oil higher without reason, but today a surprise supply and demand report coupled with higher equities and a weaker Dollar helped it close above $80 per barrel for the first time in over a year. 

Published on  Thu, Nov 5 2009, 06:07 GMT