Thursday October 28, 2010 - 03:40:02 GMT
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Treasury Bonds Reach 50% Retracement Level
December Treasury Bonds finished under pressure on Wednesday
after a Wall Street Journal news story broke saying that the Fed was likely to
purchase only about a quarter of the $1 trillion in assets that the market had
price in during its latest round of quantitative easing.
Since the Fed first started to hint at additional QE,
traders had been buying up T-Bonds on speculation that the central bank was
going to be in the market to buy up to $1 trillion of government assets. About
the middle of the month, a top was formed after Fed Chairman Bernanke implied
that the Fed may not be as aggressive as traders thought. This triggered a
sell-off, but it was the combination of todayâ€™s WSJ article and a
better-than-expected Durable Goods report that drove this market down into the
close and into a key 50% area.
Technically, based on the main range of 124â€™22 to 135â€™19,
key support has now been identified as 130â€™05 to 128â€™27. This is a wide range
so watch for traders to try to build a support base inside of this zone.
News surfaced on Wednesday that emerging market central
banks may have begun activity to slow down the pace of acceleration in their
currencies against the U.S. Dollar and capital inflows into their economies.
Although these central banks pledged earlier in the month
not to manipulate their currencies and to let the market determine their own
levels, this concerted effort seems to indicate that something is being done
behind the scenes that may help boost the Greenback.
Based on the December Dollar Index chart, this market seems
poised to breakout over the last swing top at 78.61. This move will turn the
main trend up on the daily chart and could trigger an acceleration into a
downtrending Gann angle at 79.06, then a 50% zone at 79.58.
The U.S. Dollar received additional support from a
better-than-expected Durable Goods report and a favorable Wall Street Journal
On Wednesday, the U.S. government reported a 3.3%
rise in September Durable Goods orders. The jump caused traders to pare equity
and risky commodities positions.
The U.S. Dollar traded higher across the board throughout
the day after a Wall Street Journal article suggested the Fed â€śmay opt for a
more measured dose of QE this time around rather than the shock-and-awe version
which characterized QE1â€ť.
Traders cut long positions against the Greenback as they
seemed to believe that the Fed was giving in to some G20 criticism regarding
their aggressively expansionary monetary policy. A few G20 members believe that
the Fedâ€™s aggressive spending has been driving up assets in the past, but that
todayâ€™s global economic conditions warrant a more conservative approach to
stimulating the economy.
The article goes on to further state that the Fed is likely
to purchase a few hundred billion dollars of Treasury Bonds rather that the
previous estimate of $1 trillion. This
speculation led investors who aggressively shorted the Dollar to lighten up on
their positions, triggering a short-covering rally in the Greenback.
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