Preparing for Volatility after Fed's Press Conference

As the bi-winning Fed's chairman prepares to give his first press conference on Wednesday at 2:15pm Eastern Time after the April Fed meeting, which started on Tuesday, stock markets can't wait but started celebrating already. With Volatility Index (CBOE: ^VIX) dropped back close to its 2007 level, market participants are anticipating the Chairman to reiterate that all inflations are transient and job markets are still lackluster, thus the continuation of QE2 and destruction of the US Dollar must continue in order to bring unparalleled prosperity to America. Such anticipation cannot be more obvious in the currency market, where Euro, with all its problems, has now crossed 1.45/USD and marches toward 1.5/USD, with the Dollar Index hitting its 3 year low. After all, whenever a Treasury Secretary feels that he has to reiterate the 'strong dollar policy', it serves as an all-clear signal to bet against the dollar. Also, commodity such as oil, has passed $110/barrel, and yet the president is asking OPEC to pump more oil, ignoring the root cause of the oil speculation. Given that all hawkish comments had died down in the past week, no wonder markets anticipated this way. Nonetheless, even if the market's anticipation is correct, this has become very one-sided, and it may not be a good idea to chase too much, unless the bi-winning Fed can't wait but announce QE3 at the conference. In that case, look for a very fun day for the bulls. However, if there's any slight deviation from the anticipated script, then the market will at least pause to digest it, if not unwinding the trades that were set up to take advantage of the Dollar's decline. After the press conference, volatility will probably be the highest in the currency and commodities markets, since they currently have the highest correlation to the dollar-destruction policy. If any unwinding happens, look for Euro and Yen to take the lead in reversal of their current courses, since Euro still has many unresolved issues, and Yen does not have any interest rates advantage over the Dollar for carry trade purpose. For the stock market, it really depends on the words that Bernanke utter, but it's unlikely that the stock market will do much more on Wed than its happy advance on Tuesday, unless we get some unexpectedly wonderful earrings reports from companies that report on Wed. All in all, tune in to the press conference, and be prepared for some volatility to shake things up. Daniel Ho is the founder of 10xreturn.com, a financial portal providing financial information and market statistics for investment professionals.