Bullard QE Comments Halt Equities Decline Oct. 17, 2014
Fed To Save the Markets, Again
As I noted in yesterdays commentary on the five Fed members speaking, there is always the possibility they do the verbal intervention. Yesterday it was James Bullard from the St Louis Fed saying they should consider delaying the end of the bond purchase program. This is always how it starts. First they start talking of more QE, the markets rebound and all is well until the markets test the resolve of the verbal statements. They need action not talk. Then eventually after a few to several sharp declines in the stock markets the Fed will have to come to the rescue like it has for decades and save Wall Street from its self.
However there is a problem with this scenario as there is with all such things when the patient really don’t want help, they just want to be saved so they can keep doing the same wrong acts that got them in trouble to begin with. Its no different here. In effect what the Fed has done to save the big banks has been to become their enabler and making the situation worse. At this point I think its well over due for some tough love. The problem with that for the Fed is the probability of its own end comes into play once the masses realize that they were a large part of making things worse.
The move on the EUR/USD doesn’t give us much light on direction other than the rejection after the Bullard interview as literally all markets related to risk came back on the thoughts the Fed will step in again. If that holds up today then they will keep the push going up. However since it was just the start of the verbal intervention they are more likely to test that in coming days rather than just go with what Bullard said. The best action will be to remain open on direction. The best level to short is up at 1.2839 or just below where the four hour 200 site but carries more risk if they want to run stops first. Otherwise the 1.2787 NY lows is valid for a long I would prefer the 1.2738. The problem with it is the distance from current price so if it did reach down there I would prefer to be short looking to take profit.
The GBP/USD hung around in a tighter range before the Bullard move but in the chaos of the last couple days has three pushes to the upside having a better chance for the reversal today. With it closing on its highs I will still be open for extended pushes but that will be dependent on if the really think the Fed will stop the taper. The probability for the reversal is higher the way I see it. The best level for the short is the Asian highs at 1.6109 but yesterdays highs are valid. In order to shoet at the higher risk lower level they will need to leave the Asian box closer to the lows and do some heavy trapping since the Asian highs are already 15 pips above. The best possible long will be from 1.6057 because at least then they will have pulled it back 50 pips. I have a hard time looking at the Asian lows even though the Asian range is already 41 pips. With the higher probability for the short then getting the 50+ pip pullback lowers the risk of taking a long in this situation because a long position implies they will run extended pushes without the full reversal to take out the weak holders.
EUR/JPY Mimics EU
The push and rejection we had on the EUR/JPY yesterday is more like the old risk on/off moves in more normal situations. Not that there is much thats normal about the markets today so its understandable we see the weird moves however frustrating it is for us as traders. Having said that the move leaves and clues on direction behind as with the EU. The rejection is the only thing we have. The move here today will rely on how much they believe in the Fed so being open for the short at the Asian highs or yesterdays highs are the only two options for a move south. The less risky being the Asian highs at 136.41. The Asian lows are valid at 136.02 as well for the long with the wider Asian range and also has the daily high from Wednesday as confluence along with the daily close above yesterday. It is setting up as I type and the UJ seems to be agreeing but need this candle close first. If it does and I can get a pullback I will take the long this morning. Otherwise I may be looking for a backside entry during the London session if it breaks up and holds.
Forex News Today
The calendar is bare during the London session today but ramps up during NY with US Building Permits and a Janet Yellen. The housing data is expected to improve decently so if it disappoints it should cause some USD weakness but with Yellen speaking not long after they will likely wait for her unless the miss is big. Yellen is speaking at the Boston Fed on Inequality of business opportunity so she may not take any questions on QE. If not then we may see them test down later in the day. If she does mention it in a taper the taper manner then risk will be on toward the end of the day.
Have a great weekend
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