Wednesday, November 4, 2009

The U.S. Dollar is trading lower against most currencies with the exception of the Japanese Yen as stronger equity markets in Europe and Asia helped drive up demand for higher yielding assets. Trading was thin overnight and is expected to remain that way until the Fed FOMC announcement later in the day. The first order of business today that traders will react to is the ADP Employment Report and the ISM Services Report.

Traders are confident the Fed will leave interest rates at historically low levels, but are undecided about the language the Fed will use to describe an exit strategy or an interest rate hike. Investors want to know what the strategy will look like. The main concern among investors is the Fed will act too soon to remove stimulus. This is why the focus will be on what the Fed does with last month’s statement which said interest rates will remain low for an “extended period”.

In my opinion, the Fed will leave interest rates unchanged while highlighting the strength in the economy. This should lead to a softer statement regarding the Fed’s pledge to keep interest rates low for an “extended period”. Chicago financial market traders are pricing in a rate hike sometime in June.

The ADP Employment Report is expected to show that fewer jobs were lost during October compared to over a year ago. The guess is that 198,000 jobs were lost. The ISM Services Report is predicted to show expansion. Guesses are for a 51.5 figure. This would be the indexes highest level since April 2008.

Stock indices are called higher. Thin trading conditions could help create wild swings. The chart indicates that the December E-mini S&P 500 has room to rally with 1062.50 to 1071.00 the next potential upside targets. A break under 1026.00 will most likely lead to a test of 1015.00.

December Treasury Bonds and Notes are called lower. Traders are reacting to the possibility the Fed will soften its language in its policy statement regarding keeping rates low for an “extended period”. 118’24 to 117’18 is a retracement range and current support zone.

December Gold rallies overnight but backed off as it approached $1100. Speculators are still driving this market in anticipation of more central bank buying. New support has been established at $1072.00.

December Crude Oil is called higher. Speculators are in control of this market. Higher equities and a lower Dollar could give it an extra boost however. A new higher bottom has been established at 76.55. A trade through this price will turn the main trend down. A supply and demand report is due out today. Unless this report is grossly off the mark, expect traders to ignore it.

Please do not hesitate to contact us at 1-800-971-2440, with any questions.