Markets dropped heavily after the latest FOMC meeting yesterday, as chairman Ben Bernanke mapped out a more explicit plan for Fed tapering. Stocks continued to decline today with the S&P 500 posting its biggest drop since 2011 as traders become increasingly nervous at the volatility exhibited by global markets. The index posted a 2.5 loss today bringing the total decline over the last two days up to 3.9% and losses were seen across most asset classes including gold which declined by over 4%. Asian stocks and European stocks were also down today with Germany's Dax dropping 3.28%.
In currencies, the US dollar was the big winner as investors sought safer alternatives to stocks and commodities. USDJPY gained over a per cent, GBPUSD fell sharply, as did AUDUSD and EURUSD.
The moves come as the Federal Reserve outlined a plan to phase out its levels of monetary stimulus giving the clearest indication yet that asset purchases are going to be cut short a lot sooner that had first been thought. The reduction in stimulus also makes the inflation trade a lot less attractive which is another reason why gold fell today and the greenback gained.
Gold - UP
With gold trading at $1278, the precious metal is now over 32% down from the $1900 peak it hit in September 2011. If gold is indeed still in a secular bull market spanning several decades then this is a substantial correction that offers a great opportunity for traders and binary options players in particular. The rise in volatility and sharp move down means binary options currently offer pretty good value. My view is that the current sell off in gold is now overdone and we should see some big players enter the market at these levels. That could see gold consolidate nicely and build a base before moving up once more and back above its record high. Although it is unlikely to hit these levels anytime soon binary traders should target a more realistic upside level of say 1500. To be above this level by October is cheap at around $5 and could offer excellent potential.
EURUSD - DOWN
EURUSD lost again today after yesterdays big drop that has taken the market from 1.34 to 1.318 in just a short space. The forex signals market is now closing around 1.322. As seen from the chart, EURUSD opened lower than its pivot today and lost ground throughout the session before bouncing nicely off the second support level. Traders should position themselves to be net short even at these levels, a recent run up in EURUSD means that there is some room left for the currency to move down. Tomorrow, however, could well be a turnaround day. With little data on the horizon, short sellers may close their positions which would cause a small bounce. Binary traders should therefore check the prices of binary options after tomorrows session with 1.29 being a possible good level to target.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.