It's Halloween again! And the question on everyone's mind is WHAT IS THE FED GOING TO DO TONIGHT and how will it affect the markets? The markets have made their demands clear, that they want a rate cut of at least 25bp. But will the Chairman deliver? Your guess is as good as mine.
So how do we trade this? Since this is a very tricky event, I suggest we not even try to anticipate what they're going to do. Rather, it'll be better to wait and see what they do and trade accordingly (trade the reaction to the event). There are only two ways about it: Either the US Dollar goes up (risk aversion) or the US Dollar goes down. The US Dollar going up will be a counter-trend move which we should allow itself to play out. The US Dollar going down has already been priced in and is the current trend. This should bring the AUD and CAD higher, as Gold and Oil prices will rise when the US Dollar goes down. If this does materialise (and we'll only know after 215am tonight), I'll be betting on continued gains in the Aussie. This is because Gold is perilously close to the US$800 level, where there is a high "short level" interest. Breaking above this level will cause the shorts to covers their positions, and send anything related to Gold higher (adding "fuel to the fire"). This would of course, means the Aussie and also Gold stocks such as Goldcorp (GG) and even Coeur d'Alene Mines Corp. (CDE). I'll be all over GG and CDE....Good luck for the next several days. And don't forget, we still have the Non-Farm Payrolls for Friday.
Chief Shook
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