Twitter is quickly becoming the bane of a trader’s life. Just after 3am this morning a “tweet” went out that quickly went around Wall St as a rumour that QE3 was ending. This started large scale buying and selling in the markets. Plosser (a US Fed President and member of FOMC) then backed it up by saying he would like to reduce the $85B spending spree of Ben’s at the next meeting on June 19th and that unemployment will be at the target of 6.5% for ending QE3 by 2014. This is ahead of the timeline previously predicted of 2015. Will be interesting to hear what Ben says tonight at his scheduled speech in Chicago at 1130pm.
If the $85B or QE3 is seen to be ending or reduced or stopped all together the US faces moves in the market larger than last night. The bond market propped up by Ben will no longer have the “demand” and an oversupply so will tank, which means yield and interest rates rise. Yes the Fed can roll their bond position to avoid increased payments effectively but rapidly rising rates will hinder growth as interbank rates will be squeezed and lenders will widen raise rates right at a time when the US still needs low borrowing to get out of trouble. This is the delicate problem the FOMC face, extracting themselves from the hole they’ve dug. A slippery slope indeed.
The stock market will initially tank as the money tap that has supported prices will stop but it will also be seen as a good omen for the economy. Being, that if the FOMC are ready to turn the taps off then all MUST be good right?
As for us FX trader’s the US$ will rally also because of supply has been reduced. Also because the effect is that the US economy is back in full flight, so owning greenbacks in a rising interest rate and healthy economy would be very beneficial to any portfolio.
We got a little taste of this for an hour or two in the early hours of this morning. It could also be a red flag to stock investors and they may well take the hint and start taking profit out of the stock market as it comes into the seasonal summer slump. Keep an eye on that as the US$ will rally back towards 84, hard.
Good summary article from Tyler Durden here: http://www.zerohedge.com/news/2013-05-09/hashcrash-20-qe-rumor-sends-market-turmoiling-whopping-037
DATA HIGHLIGHTS AHEAD (times are in AEDST) – 950am JPY Current Account. 1130am AU Monetary Policy Statement. 630pm UK Trade Balance. 1030pm CAD Unemployment. 1130pm US BEN BERNANKE SPEECH.
AUDUSD –Well, I did say yesterday we’ll break out of the range, did not expect twitter to be the instigator. Broke lots of support lines but held above parity by 45 pips. Also bounced and held above the 38.2% fib at 10070. With Ben talking tonight I will be listening keenly for any hint of QE3 slowing or stopping. Last time the FOMC said they can either increase or decrease the spending. The market took this as bullish and the spending would increase. I am thinking now he was preparing us for the opposite and that he is wanting to decrease it. If that is the case parity will be a speed hump on the way to 98-96 cents. Where we are now is too far from anywhere to sell it and its just too dangerous to buy it. If a rally does occur then look for selling opportunities as we are going to 98 and maybe beyond.
EURUSD – Hmm, back into the range for last 23 trading days, 1.30 – 1.31. Leaving this alone until it trends, one way or the other.
GBPUSD – Now I have the pullback I have been patiently waiting for I am looking for buyers to come back into the cable. They might come in a bit lower still as we haven’t touched the lower range of channel at 15382 area.
NZDUSD –Touched resistance, twice, before being mauled and chased back to the 61.8% fib at 8360. Like the Aussie I am bearish the kiwi but need to find the ideal selling, the resistance would at 8475 would have been good but I missed that opportunity.
USDCAD – Ok, so the buyers are in, a break above 1.01 would see us test 1.02 quickly.
USDJPY – Tricky mongrels, just has they had lulled me to sleep we get a break through! Fickle mistress you are! A retest of the 100 will have me looking for entry opportunities as this will be heading towards the 105.00 target if it does bounce on retest.
GOLD – Fell $20 on the rumour but still stuck in the range. The consolidation area is getting longer and the longer it gets the stronger the break out will be.