Tuesday October 12, 2010 - 13:16:44 GMT
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Forex Hound - www.forexhound.com
Risk off the Table on New China Worries
equity markets are trading lower this morning as traders take risk off the
table amid concerns that China
could move to cool its economy from overheating following yesterdayâ€™s move to
increase the reserve requirement for six large commercial banks.
Overnight the December E-mini S&P 500 sold off sharply
and came close to changing the trend to down on the daily chart before
short-covering and profit-taking gave the market a boost from the low.
Technically the main trend is up, but a move through the
last swing bottom at 1145.50 will change the trend to down on the daily chart.
An uptrending Gann angle at 1151.00 is also providing support this morning. A
break through this level will be the first sign of weakness.
The U.S. Dollar is trading higher against most major
currencies this morning. Short-covering ahead of the release of todayâ€™s Fed
Minutes is the catalyst behind the rally.
The Fed Minutes, scheduled to be released at 1 p.m. Central
time, will be watched closely by traders for an indication of how close the
Federal Open Market Committee is to implementing another round of quantitative
easing when it meets on November 3. The U.S. Dollar has been under tremendous
selling pressure since the last Fed meeting on September 21 when it hinted
strongly at increasing its balance sheet.
Recently the Greenback has shown signs of bottoming.
Currency traders are certain the Fed will begin easing soon. What the market is
trying to do now is price in the correct size of the asset purchase. Traders
have priced in the possibility of more than $1 trillion of additional easing.
Todayâ€™s minutes could move the markets if the report shows any sizeable
deviation from this amount. Falling short of $1 trillion is likely to trigger
more short-covering. Hints that the QE package may be substantially more than
$1 trillion could trigger another strong sell-off in the U.S. Dollar.
Comments from Fed member Janet Yellen are also contributing
to the Dollarâ€™s strength. Yellen was quoted on Monday as saying that the Fedâ€™s
current loose monetary policy has helped spawn an excessive risk-taking
environment. Some traders feel that Yellen may resist the FOMCâ€™s attempt to
further ease, but others feel that despite her pertinacity to be a dove, she
seldom votes against the majority.
Technically the Dollar Index made a closing price reversal
bottom on Monday. This pattern was confirmed overnight. Based on the current
short-term range of 83.31 to 77.05, there is a possibility of a retracement to 80.18
to 80.92 over the near-term.
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