The Federal Reserve, contrary to even the most conservative expectations, has opted to not roll back its asset purchasing program at all. It will continue to buy bonds at the rate of 85 billion per month. The news has sent the Dow Jones and S&P 500 indices to record highs. That was not the only surprise from Ben Bernanke, who also cut economic growth forecasts for the rest of this year and the next, despite tentative signs of recovery in the US labour market. He drew attention to the fact that over the past year aggregate work hours have risen by around 2.4 percent, that weekly new claims for unemployment insurance have been reduced by around 50,000 and that household sentiment surrounding the availability of jobs is more positive. He stated that these signs of growth had been achieved despite a less than conducive fiscal environment and forecast a drop in economic growth of at least 1 percent in the rest of this year. Bernanke also expected to see a reduction in employment by “hundreds of thousands”. These are the reasons that were given for not tapering monetary stimulus until more solid signs of economic recovery are present. The market consensus in anticipation of Chairman Ben’s announcement was that asset purchases would have been reduced by at least 10 billion dollars per month. Stocks rose within seconds of the announcement, closing almost uniformly higher. Yields on ten year US notes fell to one month lows off the back of the news. This may also be good for the US housing market that was left reeling after a spike in mortgage rates this last spring. Construction of new homes reached a six month high this August just gone and mortgages have also been shown to be on the increase. As far as stocks go. Priceline.com was one of the biggest winners, reaching just shy of 1000 dollars per share, making it the first ever S&P 500 stock to do so.
In other corporate news FedEx profits came in slightly better than expected, however these profits were shown to be as a result of the company cutting-costs, rather than an increase in demand. Oracle also beat its profit targets despite sales not being as strong as expected. Pandora has won a court ruling allowing the company to continue steaming music from around 470,000 musicians, even though its licensing agreement continues to be in dispute. The victory is set to shake things up in the music streaming market as Apple is about to release its own iTunes radio.
Trades today: We would say hold off on shorting or entering binary PUT trades on EUR/USD just yet. The currency pair does seem overbought but will probably not reverse just yet as the markets digest the true implications of the Fed decision. Binary traders can expect to profit from day-long CALL trades, as can Forex traders who continue to go LONG on EUR/USD, although the gains are likely to be slight compared to the previous day’s activity.