FOMC acknowledging improvement in economic conditions yesterday led to the market perceiving QE3 as less likely, and intiated a Dollar rally, and marking a key sell off in Gold (currently at $1640). Despite reports of a wider trade deficit in the fourth quarter, the dollar maintained its bullish trend.
US yields surged higher today, in a continuation of this theme, with Bernanke's statement doing nothing to take away from the bullish potential of the Dollar.
With the Dow touching 13,200 today, we see a strong move with a rising dollar and rising treasury yields (US 10 yr yields rising 0.142, t0 2.27% a substantial move).
With earnings season coming up, and 3 months to the next ISDA coupon payment date (when Europe will dominate headlines once again) I think the potential is there for a Dow rally, and with good risk reward too.
The Dow looks like it is now in sight of 13,500. With 13,000 as key Support. An interesting play would be to go Long the Dow, and short the ftse as the ftse is still below 6,100 resistance zone (which it has not regained since April)
FTSE 100 5945.43 -10.48 -0.18%
DOW 13,194.10 +16.42 +0.12%
GBP/USD 1.566 +0.00%
GBP/EUR 1.2021 +0.00%
EUR/USD 1.3029 -0.01%
Gold 1,642.40 -0.50 -0.03%
Medium Term Trade:
Long the Dow 13,182 Stop 13,000 Limit 13,390
Short the FTSE 5943, Stop 6050 Limit 5850
(Dow to outperform FTSE with earnings season coming up and
stronger improving US economic fundamentals).
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