The markets rallied today with the Dow and S&P both making modest gains. The dollar index fell to its lowest close since January. Anticipation of quantitative easing from the Fed and positive/better than expected corporate earnings contributed to the gains in the market.
Gold is expected to increase in value which if is correct, that should cause a decline in the dollar since the strength of the dollar is to gold and investors are looking for safer investments. Risk aversion is up substantially (around 65%) for the dollar. This means that investors have taken money from “riskier assets” like the US Dollar, and have placed it in safer/more stable investments, like gold. It seems market sentiment is suggesting investors are starting to view the equities market as a safer investment, because more money is being funneled into it which is helping to drive the market surge.
The correlation between the stock market (S&P, for example) and the dollar is quite interesting. Normally the dollar and S&P follow a similar trending pattern but because risk aversion has grown, the correlation has deteriorated. This means for example, when risk aversion is low, an increase in the stock market would normally mean an increase in the value of the dollar. Since risk aversion is high investors seek to put their money in more "secure" assets; an increase or jump in the stock market most likely will mean a decline in the value of the dollar.
Yesterday, the Fed released its notes from the September FOMC meeting. The minutes outlined that the FOMC will keep federal fund rates at 0 to 1/4 percent. It was also brought to attention that inflation was too low and not balanced in correlation to the percentage of the unemployed Americans and consumer product prices. Because there was no increase in interest rates, inflation will most likely remain low in relation to maximum employment and price stability.
Because of these announcements and results I would have expected a run past 1.400 but the Eur/Usd pair touched briefly above 1.400 over night and then shot down.
FOMC minutes : http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20100921.pdf
Technical:
The EUR/USD pair channeled around for the day; I was expecting a break out of some type. I was leaning more towards a long break out but I began second guessing my analysis because the pair didn't move much in comparison to the US market move and risk aversion news. I did see however that the Bollinger Bands were indicating a large movement, either short or long. I suspect since the pair has broken my R2 (resistance 2) at 1.404 it will head to my R3, which I have at 1.4136. I will be surprised if it hits that level today but have I placed some limit sell orders in that area.
I'm not ready to void out the two Doji Candle sticks from 10/7 & 10/8 but I am not basing any short positions off of them until I see further confirmation that a temporary top is in place. I'll be looking for an engulfing bearish candle, overbought RSI (Relative Strenght Index), more Doji candles.
It looks like the dollar is about to hit an all time low for the year so that may mean that risk aversion is increasing and traders are taking more money out of the dollar and placing it in less risk averse strategies like commodities (Gold & Oil).
Technical:
The EUR/USD pair channeled around for the day; I was expecting a break out of some type. I was leaning more towards a long break out but I began second guessing my analysis because the pair didn't move much in comparison to the US market move and risk aversion news. I did see however that the Bollinger Bands were indicating a large movement, either short or long. I suspect since the pair has broken my R2 (resistance 2) at 1.404 it will head to my R3, which I have at 1.4136. I will be surprised if it hits that level today but have I placed some limit sell orders in that area.
I'm not ready to void out the two Doji Candle sticks from 10/7 & 10/8 but I am not basing any short positions off of them until I see further confirmation that a temporary top is in place. I'll be looking for an engulfing bearish candle, overbought RSI (Relative Strenght Index), more Doji candles.
It looks like the dollar is about to hit an all time low for the year so that may mean that risk aversion is increasing and traders are taking more money out of the dollar and placing it in less risk averse strategies like commodities (Gold & Oil).
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