Taper Thursday

Last Night Ben Bernanke and the FOMC delivered their most Hawkish guidance in a long time hinting that Tapering is coming sooner rather then later and changed the threshold for Tapering of future Asset purchases. The Market expected him to maintain some what of a dovish tone in his remarks but when he talked about changing the threshold of tapering to nearer 7% from 6.5% unemployment the Dollar took off with Bonds, Equities, Metals and Commodities all going south from a stronger Dollar and the prospect of reduced liquidity in the system.
Bernanke gave guidance into reducing purchases but left the caveat that its down to data so the market will continue on in the good news is bad and vice versa approach. All eyes will be back on the Data and the Tapering Trade will be the major fundamental driver over the summer months.  We feel that the moves may be overdone considering the Dollar was very oversold and their may have been a lot of short covering on short Dollar positions that traders were exiting quickly once they heard the Uber Dove Bernanke's hawkish rhetoric.
A lot of the Moves from last night are still playing out and in the Metals market and these may indicate that they are lasting and not ones to try and fade like the Currency moves. Gold hit the lowest level since 2010 this morning as the Spot USD contract traded at 1304. Major psychological levels in all base metals are approaching and moves below these could be very bearish. Copper sits at 306 approaching 300, Silver at $20.4 and Gold off the lows at $1314, all very close to breaking long term support levels and all looking very weak fundamentally as physical demand has started to dry up from a Slowing Chinese and Emerging Market growth. Some analysts last week started to call for Gold to go to $1200 per ounce in the coming weeks and they could be spot on considering leveraged funds will start to be Margin called on Long Gold positions once $1300 is broken. Expect heavy stop loss selling if this level goes.
Looking at Currencies, We mentioned last week that the CFTC positioning of EURUSD traders was more neutral  then net short a few weeks ago leaving the pair open to faster declines as the currency was overbought and the Dollar oversold, however the move has been drastic from 1.34 to under the 1.32 handle in less then 12 hours. Poor European Manufacturing data has added to the sell off in this pair along with Strong U.K. data.

Yesterday's Daily candle was what we call in Technical Analysis an Outside Day reversal. This is when the High and the Low point of the day's range is greater then that of the previous day and is highly bearish. Combined with a pick up in Volume and a fundamental development it looks like we could have a medium term cap on the EURUSD price action at 1.34. The price action will undoubtedly come back to retest a cluster of Moving averages between the 1.30 and 1.31 handles. Another bearish development is the crossing of the 200 Day Moving Average underneath the 55 Day Moving Average, this generally signals additional downside in a pair and will have a lot of Euro bulls re-thinking their positions for the next few months with more easing potentially on the cards from the ECB in the form of Negative deposit rates or a narrowing of the corridor.