Good Afternoon, Friends. On the three minute charts, which I use to trade futures (and which I don’t use to trade FX), EUR/USD and the E-minis were pretty well correlated today, at slightly over 0.8%. That doesn’t imply that a move in one is causing gyrations in the other; in today’s case, both were reacting to Fed Chair Bernanke’s testimony, and then to the release of the FOMC minutes. Dr. Bernanke’s testimony was largely reassuring, implying that while the degree of quantitative easing (QE) might be reduced in coming months, the hurdles to doing so remain high. The minutes indicated that several voting members are more inclined to act sooner rather than later. Since the general belief is that the rise in stock prices is due in large part to the Fed’s generosity, this suggestion triggered a goodly amount of selling.Â
I’m not a voting member of the FOMC; I don’t even know any, although my sister was a college classmate of Fed Governor Sarah Raskin (they weren’t friends). My opinion, therefore, isn’t worth much, although my bias is that Dr. Bernanke has the votes needed to proceed as slowly in withdrawing stimulus as he likes. A fair number of the Fed voices publicly calling for more rapid action don’t have votes on the Committee this year; Â next year, unless Dr. Bernanke changes his mind, there will be a new Chair (the betting favors current Vice-Chair Janet Yellen).
In any case, EUR/USD topped out at 1.2997 at 10:09 EDT, and proceeded to drop 1.3%, to a low on the day of 1.2833. Â This will, I think, make traders inclined to steer clear of the 1.30 level now, even if they are long and the position is working up to that point. The E-mini futures weren’t quite as neat; from 1685.75 at 10:27 EDT they moved substantially lower, to 1646.50 (2.3%) before rebounding. I haven’t had a chance as yet to view Todd’s video update on the day’s trading, but there’s always a lot of excellent commentary there.Â
The E-mini vertical bar for the day is elongated and very red, certainly a warning sign, although as I view the chart, no major levels have been violated. I’d like to see some indication on the hourly chart that some support has been reached before getting too aggressive on longs. As a friend frequently notes, “The first guy out of the foxhole wins the medal. Posthumously.” The EUR/USD was in a downtrend, and remains in a downtrend; the failure to break above 1.30 increases the likelihood, again in my view, that the recent low at (rounding slightly) 1.28 will be retested. I see Â no reason to cover shorts there, as yet, although I will admit to having had some concern this morning.Â
This was a pretty intense and tiring day in many respects, calling for some exercise, and a good night’s rest. Have a good evening, and best of luck tomorrow!
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