Saturday October 30, 2010 - 02:48:14 GMT
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Forex Hound - www.forexhound.com
U.S. Stock Indices Finish Flat for the Week.
As foretold on Monday, U.S. equity indices finished flat
for the week. Although there were some sizeable swings triggered by news
stories and speculation, for the most part, investors were not willing to take
a position in front of next weekâ€™s Federal Open Market Committee Meeting.
The scenario for next week is simple in my opinion. Maximum
liquidity is bullish.
Unfortunately the Fed is not going to make it that easy.
Guesses are they will provide $1 trillion in new quantitative easing or $250
billion. Anything in between could cause choppy trading over the short-run.
The trend is very strong in the equity markets so chances
are that even a sharp break will be bought up by value-seeking investors.
Iâ€™ll have more on the electionâ€™s influence on trading on
The U.S. Dollar Index finished the week lower after failing
to confirm last weekâ€™s potentially bullish closing price reversal bottom.
Clearly, both the daily and weekly chart patterns indicate
this market can accelerate to the upside if the daily swing top at 78.61 is
taken out to the upside. This move is likely to trigger a short-term rally to a
50% retracement level at 79.58.
The strength and direction of the Greenback will be
determined next week by how much the Fed allocates to quantitative easing.
Since August, the Dollar has been crushed as traders
speculated the Fed would purchase up to $1 trillion of quantitative easing.
Earlier this week, the Dollar rallied when a Wall Street
Journal article said the Fed would probably pump $250 billion into the economy.
$1 trillion is the upper end of the range and $250 billion
is the lower end in my opinion. Anything in between probably means a resumption
of the Dollarâ€™s downtrend, but without much fanfare. A figure of $1 trillion or
more will be extremely bearish for the Dollar. $250 billion or less will be
bullish for the Dollar.
Although it seems everyone has been talking about QE2, it is
possible that the Fed may surprise by cutting the interest rate it pays on
deposits by member banks. Once again, putting liquidity into the market is not
going to be good for the Dollar.
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