Wednesday, December 16, 2009

Equities are holding firm overnight ahead of the Fed’s policy statement. Traders want to see indications that the Fed sees improvements in the economy. At the same time, they don’t want to see higher interest rates. This sets up the possibility of a choppy two-sided trade following the release of the FOMC statement. A rally through 1114.25 in the March E-mini S&P 500 is likely to trigger a rally to 1119.00, then 1122.00. A break under 1009.75 could trigger a hard break to 1096.75.

March Treasury Bonds are trading slightly better. The recent sell-off in the T-Bonds and T-Notes is a sign that traders are anticipating hawkish comments from the Fed. The failure of the Fed to accommodate these traders is likely to send the Treasuries sharply higher.

February Gold is trading higher. This is a sign that gold traders are betting on a weaker Dollar following the Fed report. The chart indicates a move to $1155.50 is likely.

March Crude oil is trading inside of a retracement zone after forming a new main bottom at 72.45. The chart indicates a rally to 75.53 is likely over the short-run. Firmer stocks and a weaker Dollar could support a rally today.

The U.S. Dollar is trading softer overnight as traders reduced long positions ahead of today’s Federal Open Market Committee meeting.

The Fed is expected to leave its benchmark interest rate at 0.25%; the argument is whether it will alter the language its policy statement to represent positive changes in the U.S. economy.

Bullish Dollar traders are looking for the Fed to lean more toward the hawkish side. These traders have increased bets the last few days that the Fed would soften the language of its last monetary policy statement. These changes would include altering or removing the Fed’s stance to keep interest rates low for “an extended period”.

From a trader’s perspective, the Fed will have to substantially alter the language of its statement since a simple softening of a few phrases has already been priced into the market. In addition, traders are likely to sell the Dollar if the Fed leaves the current language intact or if it surprisingly becomes more dovish. Based on these scenarios, the Dollar is likely to feel pressure following the release of the statement. Today’s announcement could become a simple case of “Buy the Rumor, Sell the Fact”.

A break in the Dollar after the Fed news should be treated as a profit-taking correction and not the start of another change in trend. Now that the main trend has turned up, traders should look for a buying opportunity on the next substantial pullback.

The March Euro is trading better overnight. Traders are lightening up short positions ahead of the Fed’s statement and reacting positively to good Euro Zone purchasing manager’s indexes on manufacturing and services. For the second day in a row, the Euro is holding a .618 retracement level at 1.4465.

An unexpectedly better U.K. jobless claims report is helping to give the March British Pound a boost overnight. This was the first decline since 2008. The British Pound held inside a retracement zone at 1.6292 to 1.6254 the past 4 days while trying to establish a support base. Breaking out to the upside could trigger a rally to 1.6443 to 1.6508.

The March Japanese Yen is trading a little better overnight. Today’s downside target is 1.1062. The chart indicates room to the upside with 1.1139 a potential target.

The March Swiss Franc is taking back some of yesterday’s loss. Watch for a possible pullback to the old main bottom at .9690. A failure to hold a correction back to this price indicates further upside pressure. The chart indicates this market could rally back to .9830.

The Canadian Dollar is trading slightly better. This currency pair remains inside of a main range at .9571 to .9365. A minor range at .9504 to .9440 is also attracting attention.

Please do not hesitate to contact us at 1-800-971-2440, with any questions.

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