Crude Oil Tumbles ahead of FOMC Day as Traders Fear QE3

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The James’ Report: Professional Resources for Professional Traders

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– FOMC decision later today: Traders wonder if the Fed will go ahead with QE3???

– China inflation comes hot at +6.5%, highest since 2008

– Hang Seng, FTSE 100Index enter bear market territory

– ECB back in buying Spanish & Italian gov’t bonds

– Disappointing UK production data; If BOE lowers its GDP growth outlook on Wed the UK might see if sovereign outlook cut

– Market eyeing France as the next possible sovereign downgrade and that occurs then the EFSF rating goes as well

– ECB’s Trichet commented on Radio1 that the global economy faced a problem of confidence due to a multitude of factors and not only the US sovereign downgrade. He reiterated the view that reasonable budget policies were the key to confidence and that the ECB’s bond buying program targeted to restore market functioning. The ECB was not planning to intervene in the primary bond market but only planned to act and stay in the secondary bond market. Trichet had no comment on how long the unconventional policy action would last and lastly he made clear that the ECB did not negotiate with gov’ts and remains independent

– Greece placed a temporary ban on short selling of ETFs on the Athens Exchange; Effective immediately up to and through Oct. 7th

– The press reported that the cause of the current crisis differs from that of the banking crisis in 2008. The current crisis was caused by governments around the world. It relates to government debt and not consumer debt. The article suggested that the differences in the current situation and 2008 means that government intervention could be less effective in the current crisis, as the economy already has ample liquidity.

– Former US Treasury Secretary Paulson said he is more concerned about the problems in Europe than in the US. In the New York Times article the former treasury official added that Europe could be a lesson for the US if politicians do not fix the country’s finances. He believes that the US government cannot only rely on expense cuts to lower the deficit.

– In the Telegraph, investor Jim Rogers said that Britain could face a sovereign downgrade and that the Bank of England could expand its quantitative easing program. In addition to Britain, the investor stated that Belgium could also face a downgrade. During yesterday’s session, he said that the US should be rated even lower than AA+.

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Today’s Economic News:

Looking at the news for day traders this morning, all eyes are on the Fed. Today is known as FOMC-Day which means traders will be getting in early, and getting out of the markets early this morning ahead of the 2:15pm EST announcement. We typically see good volume on FOMC Day. Today is a summertime trading day so expect volume to taper off earlier than normal.

We begin the day with 830am Productivity & Costs news here in the US, followed by the US Open at 930am, and then looking at the transition into lunch after 1030am today with FOMC announcement at 2:15pm. Tough to say how long we will get volume today, but we should have enough to make some profits!

Today’s FOMC Day:

The FOMC announcement at 2:15 p.m. ET for the August 9 FOMC policy meeting is expected to leave the Fed funds target unchanged at a range of zero to 0.25 percent. Traders will focus on any changes in participants’ views on the economy, notably for the consumer sector and credit conditions. Also garnering attention will be discussion on future plans for unwinding or delaying unwinding of the Fed’s expanded balance sheet.

News for Day Traders

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Looking at the Charts:

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The US Dollar Index is trading lower this morning as traders look ahead to FOMC Day. Lets this be a great heads up for what the overall market is THINKING right now…moments before FOMC Announcement this afternoon we will see the TRUE fears and biases enter the market! We see the US Dollar moving lower this morning with a slight downtrend. Using the US Dollar Correlation we will be looking at falling prices on the USD to be bearish for Crude Oil (less demand) and bullish for the Gold (more demand for shelter), bearish for the E-mini’s (less demand for equities) and mixed on the Euro (we will have to see where traders convert their USD to Gold or the EURO). The most important aspect to remember about the USD is whats happening NOW is the most important, so we will watch the charts closely today ahead of FOMC.

Crude Oil Futures tested the 75.00 level overnight, which we are certain has the OPEC community on guard today. Remember the ‘line in the sand’ for OPEC has always been the $75.00/barrel mark, and I’m sure we will see some ‘protection’ of that level this morning to guard against even further dropping of prices this week.

We can see crude oil is trading in a sharp bear price channel with lots of easy suport and resistance around to use for trading opportunities. The key will be using the short trend to make educated decissoins, so use the short side as the high percentage trades today. Im looking to sell the highs of the channel on crude, and sell resistance levels overhead such as 81.95, 83.83, 84.24, 84.57, 85.00 etc. If we make new lows im then selling retracements looking to take profit (and a short term price reversal) at support levels such as 77.30, 76.06, 75.70. The key this morning will be watch the clock and dont trade too late ahead of FOMC, and use this bear channel as your guide.

Gold Futures once again breaking new all-time highs overnight ahead of FOMC Day today in the US. Traders are fearing the worst in the US and Europe. Thoughts of a possible hint at a QE3 in the US is expected today and thats why people are hitting the exits on the US Dollar, the Euro, and other equity markets around the world and putting money in Gold as protection from falling prices. Today, like the past 3 weeks is all about safety trading gold. Im staying away from the all-time highs because it will be too emotionally-charged buying and taking profit at the highs. Im waiting for deep pullbacks now to buy more gold and hold into the highs, and looking for signs of failure at major support, trying to grab some short trade off the new highs without selling the highs directly. Beware this market, very challenging price action right now, and we will be using extra caution until we get off these all-time highs on Gold Futures.

Euro Futures are once again right in the middle of the trading range, making it easy to get into trouble today as a day trader in the middle. The key to trading this type of market on the Euro is to be patient and wait for price to rise up to 4393 and look to sell it as resistance. If it breaks through that level than I buy a pullback and take profit up at 4438, and keep following that plan as price keeps rising. If price falls im looking to buy support at 4177 first and then if it breaks support I will sell retracements looking to take profit at the next support levels of 4144, 4122, 4041 and so on. Again, the key is not getting into trades too close to the middle 4250 area, stick to selling the highs and buying the lows below us until this price action changes which should come here soon after FOMC today.