Equities Testing the Fed, October 10, 2014
Equities take a dive after Wednesdays pump
As I look through the news today I see many articles pointing to the drop in Equities being due to several things ranging from the Ebola risk to the global economy slow down or the risk of war. Although all of these and others I didnt mention do have validity on the cause of the move down but what if it was much simpler than that? Could it be that the big boys are just testing the Fed?
Just to put this in perspective, there has been a Fed intervention in the markets ever since Black Monday when stocks crashed in 1987. Every time since, when there has been a major correction (that used to be known as part of the business cycle) the Fed would step in and save the day. Eventually letting the banks that really rule the financial get more and more corrupt knowing that they would not only get away with the crimes they were and are still committing but considered the small fines that they did pay when caught, just part of the cost of doing business. But I digress.
Now we have had the biggest financial crisis ever seen and instead of letting the big boys go down in flames like they should have the Fed stepped in and saved the day yet again followed by just about every other central bank on the planet. They would just take turns keeping things afloat. Well now the Fed has slowed the purchases to a trickle and said they will be done at the end of October. In short when the Fed does actually stop they will push the sell button again and we will likely see a correction as the big boys panic and the Fed will be back again.
Now this is just what I see as the highest probability scenario and I have been wrong before. This could go one of several other ways. Having said that I am rather sure the Fed will be back expanding its balance sheet and so are the big boys. Its just a matter of how far will they let stocks drop before they do. THIS IS ONLY A TEST. IF IT WERE A TRUE EMERGENCY YOU WOULD BE GIVEN INSTRUCTIONS TO BUY BUY BUY. Just before we confiscate your savings. 😉
On to the charts
As seen usually with risk off moves the EUR/USD made the push down as well showing a first intraday push and closing the day on its lows. I will have a small bias for the short today while remaining open for the long from 1.2672 where we have the hourly 200 acting as support for now. The best level for the short will be up at 1.2723 but if they do hold the current Asian highs below 1.2700 and leave the Asian box closer to its lows then a play on the breakout traders to the Asian highs with a clear trap will be good to short from with a good entry.
The GBP/USD followed suit and made the move down as well running 122 pips on the day going back into the two day chop it has broke from on the Fed meeting minutes. This does qualify as an intraday push as well but going back to the chop makes me want to remain more open on direction. If the Asian range can widen a little more to around 30 pips then the Asian high/low becomes valid levels but would help to either see the stop run to yesterdays lows for a long or the widening of the range and see the manipulation hit the hourly 200 to take the short. Otherwise I will look for the potential short at 1.6161.
This pair has also come back in the chop so I will be open on direction here as well. The intraday push down is there but may be just a trick so playing the range is safer until we get some conviction below the lows for the short. With it closing on the lows the break down does have higher probability now but will depend on if the risk aversion scenario plays out again today. The safest level to short is at the highs around 137.71 but I have my doubts they will push there before a move down. I will be open to short from the current Asian highs since they have pushed the range to 40 pips but will need a good entry taking it in the 130 pip range. Otherwise the stop run to the lows at 136.64 with a low risk entry will get me long
Forex News Today
The calendar is rather bare today with only UK Trade Balance during the London session. This usually doesnt provide a reason to make a sustained move but a very large miss could. Otherwise it may also be just a reason to run stops so is worth paying attention to. My thoughts are they will either keep the risk aversion running and equities drop or keep the “Fed will save the day” mantra going and push most everything up.
The US has Fed member Plosser speaking but I doubt there will be much from that either. Their speeches have been non events as of late.
Have a great weekend
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