Market Overview

Bernanke Declines to Give Forex Traders Any Info They Did Not Already Have

On Wednesday, the Federal Open Market Committee concluded its two-day meeting on U.S. monetary policy.

Following the meeting, the Fed released a statement outlining its assessment of the economy.

In the statement, the Fed described the pace of the economic recovery as being weaker than anticipated. The Fed cited “temporary factors” as reasons for the delayed pace of recovery.

The Fed acknowledged that inflation had “picked up,” but stated that long-term expectations were “stable.”

So what can traders do with the Fed's statement?

Not much.

The Fed was, for the most part, relatively ambiguous, and gave the market little information it did not already know.

The Fed will maintain a policy of low interest rates for the time being, but did not announce a plan of additional quantitative easing, nor did it outline a policy of reigning in liquidity.

Traders may be able to learn more at 2:15 pm, when the Fed's Chairman Ben Bernanke will hold a press conference.

Action Items

Bullish: Traders who believe that the Fed will rollout a third round of quantitative easing in the near-term might want to consider the following trades:

  • Buy iShares Silver Trust (NYSE: SLV) in a long play on silver. April's silver mania seems to have subsided, and traders may wish to move back into the precious metal before QE3 is announced.
  • Buy iShares Lehman Aggregate Bond (NYSE: AGG) in a short play on government bonds. If the Fed buys more bonds, yields may stay low, and AGG may do well.

Bearish: Traders who believe that inflation will prevent the Fed from intervening anytime soon may consider taking positions in the following:

  • PowerShares DB US Dollar Bullish Index (NYSE: UUP) is a long play on the U.S. dollar. If the Fed hints at any tightening, the dollar may rally and UUP might do well.
  • ProShares UltraShort 7-10 Year Treasury (NYSE: PST) is a short play on U.S. bonds. If the Fed stops driving the bond market, PST may rally.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: Long Ideas Short Ideas Specialty ETFs Commodities Currency ETFs Forex Economics Trading Ideas Best of Benzinga

 

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