The Ricin attack on the US Senate mailroom stopped an S&P upward breakout in its tracks. The move higher squeezed the short term shorts out whilst the move lower on the Ricin news should not overly concern the bulls. The US equity markets have a history of shrugging off such minor shocks and they can actually help to accelerate the move upwards as fund managers buy on the dips, further squeezing out speculative shorts. I would expect the stops on the S&P to be ranged between 1042 and 1045.
The Dollar had an impulsive move higher overnight, triggered initially buy Euro buying out of the middle east. Due to the inherent US budget deficit, Dollar moves lower will generally be quicker and more violent than the moves higher, against the tide. This does not mean though that dollar is a one way trade and we will be looking closely at tomorrows Federal Reserve data on central bank bond purchases. Over the last few weeks this has been increasing and is now on a par with the Budget Deficit. Sterling remains strong against the Euro despite today's Euro/$ move higher. We are just above major support from 0.6810 to 0.6820 and many traders are establishing sterling longs ahead of tomorrows expected rate rise.
Re the rate rise here is something for traders new to Forex to be wary of. Alot of traders are buying sterling and I would not be surprised to see further buying ahead of tomorrow rate announcement at Midday. However if this position gets "crowded" I.E. everyone has the same position then it could well be that the best risk-reward play will be to go into the announcement short of sterling. If everyone is long sterling and they do increase rates then the pound might not rise much as traders would take profits. If the BOE surprised the market and did not raise rates then there could be an impulsive sell-off. We will decide whether to trade this strategy in the morning after we establish which way most of the traders are positioned.
One has to feel sorry for those US politicians after being subject to a WMD attack. It's actually quite ironic that they are more susceptible to such attacks in Washington than they ever were in Iraq. Our MP's can rest easy though as there is no chance of it ever happening here in London. I do not mean to suggest that our security services would be up to the challenge but rather that our mail carrier isn't.
Harry
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