Markets rebound from Fed “surprise” taper decision

Currencies:

The December U.S. Dollar Index (NYBOT:DXZ13) closed Friday at 80.555, up 7.5 points but posted its second consecutive weekly loss. The Federal Reserve’s decision to maintain its bond buying indicated their view of a sedentary economy, not a recovery style recovery the U.S. administration is promoting. The Fed clearly views as problematic some elements of the economic data and maintaining low interest rates is negative for dollar investment. Expectation now is for the Fed to "taper" in October and that, if it occurs would bode well for the dollar since it would be a de-facto increase in U.S. rates. We would now look to get back on the long side of the dollar on a scale down using call options. Contact us for what we believe are the appropriate strike prices and expiration. The December euro lost 4 ticks on Friday closing at $1.3526. Other losses include the Swiss franc 3 ticks to $1.0986, the Japanese yen 1 tick to 0.010072, the British pound 18 points to $1.6006, the Canadian dollar 37 ticks to 96.88c and the Australian dollar 30 ticks to 93.57c.

Energies:

October crude oil (NYMEX:CLV13) closed at $104.67 per barrel, down $1.72 on reduced concern over Middle East supplies as Libya’s oil production increased. For the week crude declined 3.3%. Our overall view remains bearish tied to supply/demand but the continued concern tied to Egypt and Syria and increased terrorist activities in the region could change the overall picture. The growing threat of instability as witnessed by the horrendous mall attack in Kenya is of concern so we would avoid this market.

Copper:

December copper closed at $3.3055 per pound, down 4.15c tied to the decline in equities and based on the assumption that the U.S. Federal Reserve sees economic weakness enough to warrant sustaining their stimulus program. We remain bearish on copper but will watch for any changes in the U.S. or China economic data.

Precious Metals:

December gold (COMEX:GCZ13) closed Friday at $1,332.50 per ounce, down $36.80 or 2.7% but for the week managed a gain of 1.8%. The selloff on Friday was in response to the inordinate gain on Wednesday following the U.S. Federal Reserve’s Open Market Committee decision to maintain its bond buying program. We see gold in a trading range and would avoid any positioning here. Gold has lost nearly 20% for the year and is not conducive to investment by retail clients. After surging 8% on Thursday after the Fed announcement silver lost 5.9% on Friday closing at $21.927 per ounce. October platinum lost 2.7% to close at $1,432.60 on Friday and for the week lost 0.8%. December palladium closed at $717.60 per ounce, down $20.60 per ounce or 2.8%. We are avoiding precious metals markets. Their exaggerated response to data precludes participation by our clients.

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