Markets bounce, QE3 – QED?

What a day today for markets. Everything was under pressure early and then Ken Rogoff turns up on Bloomberg talking about QE3 and off we go. This could be true or a complete furphy as it is just coincidence that the Fed is due to make an announcement on monetary policy at 2.15pm New York time after its normal meeting. 

How this could have been a surprise to some traders and investors I can’t fathom but we’ll know later tonight when the FOMC releases a statement. But after such a massive selloff and pressure traders have voted by cutting positions and having what we call a “relief rally”

Dow futures move 500 points in night trade to be currently up 261 points or 2.40% as I write.  Australian 3 year swap rates have moved from 3.95% at one stage today to 4.33% now. Still in the territory of many cuts but at least not the Armageddon that was priced earlier today and our friend the AUD is back up at 1.023 after making a low of 0.9928 earlier today.

The chart above shows that if the AUD can get to 1.0360 it will face resistance from both the very short-term trendline and the 38.2% retracement of the move.

It is similar in all other markets which are bouncing on relief, there is plenty of wood to chop.

The question is: will Rogoff be right? Pehaps.

But markets are back from their highs when I started writing this blog which i think reflects the fact that Rogoff also talked about teh enduring nature of this economic weakness which I think, above all efforts at QE, ultimately continues to weigh on markets over time.

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