With the benefit of 24 hours hindsight, the strong reaction to yesterday’s FOMC meeting by many world markets looks very like a short term trading reaction. Traders, particularly in the currency markets seem to have been caught out by the Fed’s ongoing caution and this triggered a round of stop loss induced volatility. The clue to this market action was the fact that the very large moves in the hours following the FOMC announcement have not been followed through.
Many of the world’s markets, including the US stock markets traded within the previous sessions range last night. Early indications are that the Australian market will follow suite, with a soft start followed by an inconclusive day’s trading inside yesterday’s range. However, this is not a certainty. Traders will be alert to the possibility that the strength of buying for the major banks could follow through today pushing the ASX 200 index closer to the much anticipated 6000 level.
Softer oil prices last night suggest the market is finding it hard to ignore the ongoing build up in US inventories and the fact that the economy can’t use what’s currently being produced. This may be a negative for the energy sector today and is a reminder to the broader market of excess capacity and weak inflation in global economies.
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