Saturday, September 15, 2012

Meta-Trader - Don't fight the Fed

Welcome back, Meta-Traders.

It was an historic week in world markets. We had 3 huge developments with macro level implications as follows:

- On Wednesday the German high court ruled in favor (or at least not against) Angela Merkel's agreement with European Central Bank's plan championed by (Mario Party) Draghi to print large quantities of Euros to buy EUR denominated bonds to reduce pressure on Spain, Italy and other sovereign's under duress.

- Later on Wednesday, my favorite stock and world's highest capitalized stock Apple Computer announced the 5th generation of their popular iPhone smart phone.  By all counts, the product is a hit, lighter, thinner and with a higher resolution screen.  Throw in new 4G networking and the accolades came in from all angles.  Apple stock rallied on the day of the announcement and also on Thursday and Friday closing Friday at an all-time high of about $691 a share adding about 16 Billion in market cap for this week alone.

- The big bomb dropped on Thursday at 12:30 PM when the US Fed issued their interest rate decision ending weeks of speculation and hint-dropping with key highlights as follows:

1) New stimulus program centered on Mortgage-backed securities pledging to buy 40 Billion (that's right billion) of Mortgage bonds per month.  They also indicated this position was opened-ended, and they would continue to buy bonds as long as necessary until the economy improved.

2) The Fed indicated they would keep interest rates between 0 and 1/4 of 1% until late in 2015.

3) The Fed also indicated they would not be in a hurry to tighten policy and would remain accommodative well after the economy starts to show signs of strength.

Well this was all the Fed bulls could expect and was quickly tagged by the financial media as the most fiscally accomodative statement in the history of the Federal Reserve.  This was all it took to light a huge rally under stocks on Thursday which had already rallied significantly for weeks into the announcement.  Uncle Ben promised big action and he delivered beyond expectations.

Asian stocks also loved the news on their Friday session which ignited another rally in US Stocks on Friday pushing the Dow Jones 30 and the S&P 500 up to 4+ year highs and within a few percentage points of the all-time highs set back in 2007.

All this bullishness sent currencies rallying with across the board dollar weakness and a capping a huge week in EUR/USD which was in solid rally mode all week, even before the Fed Announcement.  2 of my 5 currency accounts had solid gains for the week.  But extreme volatility in the Atipaq instances took profits from those accounts and gave back some recent gains.

Its no doubt and free and easy money is here to say and tighter monetary policy is a long way off.

Not much happening on the development side with currency trading since my regular day job, college search and household responsibilites have me hemmed in.  But we had a great week in markets on top of an already great year.  So we'll take it for now and live to trade (and code) another day.

Have a great week.

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