Tuesday November 2, 2010 - 14:09:30 GMT
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Equity Markets Called Higher Underpinned by Election
equity markets are called higher this morning buoyed by increased demand for
higher risk assets and underpinned by forecasts of a Republican victory in
With a Republican victory priced into the market, the size
of the victory is most likely going to be the driving force today. Early in the
session, gains may be limited but as exit poll results begin to come out,
stocks may appreciate further.
How high the markets can rally is uncertain at this time
because no one is sure how much the Fed is going to allocate to its new
quantitative easing program. Guesses currently range from $250 billion to $1
trillion. The general thinking is, the higher the number, the stronger the
The weaker Dollar is helping to drive up commodity prices
this morning. Gold, silver and crude oil are all posting modest gains. Gold
traders seem to be waiting for the Fed news before making their move because of
the lofty price levels. Silver traders, on the other hand, have been more
aggressive on the long side although $25 seems to be a psychological barrier at
this time. Crude oil appears to be one of the strongest markets this morning.
Traders could be anticipation bullish supply numbers tonight and tomorrow
The December Australian Dollar rose sharply overnight after
the Reserve Bank of Australia
unexpectedly hiked its key benchmark cash rate by a quarter-point to 4.75%. In
its policy statement, the RBA cited inflation risks as the main reason behind
the hike. It was the first rate increase since May 2010.
The news sent shorts scurrying for cover and encouraged
aggressive buying that sent the Aussie closer to parity with the U.S. Dollar.
Mortgage rates rose after the increase leading to speculation that pressure to
hike further in the near-term would be reduced. This projection helped to
temper the pace of the overnight gains, but did not attract any noticeable
aggressive selling. It seems that parity is the natural resistance this
Although the recent sharp rise to levels not seen for more
than 20 years helped to keep inflationary pressures in check, the RBA still
felt it needed to act at this time in light of the sharp rise in commodity
prices. Before the central bank‚Äôs move, market participants had put a low
probability on a rate hike.
In its policy statement accompanying the RBA decision, Gov.
Glenn Stevens said, ‚ÄúAt today‚Äôs meeting, the board concluded that the balance
of risks had shifted to the point where an early, modest tightening of monetary
policy was prudent.‚ÄĚ
‚ÄúConcerns about the possibility of a larger-than-expected
slowing in Chinese growth have lessened recently, and most commodity prices
have firmed, after a fall earlier in the year. The prices most important to Australia
remain at very high levels, with the result that the terms of trade are at
their highest since the early 1950s,‚ÄĚ the RBA said.
Technically, the sharp rise in the Aussie challenged the
natural resistance level at 1.00. The actual overnight high took the market
slightly beyond the October 15 top at 1.0002.
An uptrending Gann angle at .9750 is the nearest support and a new swing
bottom has been formed at .9651.
With the RBA hiking rates and the Fed expected to ease again
at its meeting on November 3, traders are expected to continue to press the
long side of the market. The key to sustaining the rally will be closing over
1.00 then establishing support at this level.
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