Bernanke Injected another Dose of Steroids into the Markets
Bernanke reiterated today that the Federal Reserve`s “accommodative monetary policy” will continue despite the improvement in the economy. The Fed will keep interest rates near zero until 2014 citing there is still “significant downside risks”.
The U.S. equities markets rallied on this latest dose of artificial stimulant from the Fed’s Chairman, recovering last week`s losses. The Dow Jones Industrial Average is up close to 1 percent and gold rose over $20 to $1,685 at the time of this article. The Euro also gained versus the USD trading near the 1.3350 resistance level.
Since the tensions in Europe have eased a bit in recent days, the Euro has been appreciating versus the USD. Trading above the 1.3350 resistance, the next resistance levels are 1.3480 followed by 1.3580 – the 50 percent Fibonacci retracement. Support is at 1.3200.
Gold is moving higher with the help of Bernanke’s statement. The extended low interest rates environment in the United States caused the USD to move lower versus most currencies. Gold is again in the spotlight as the alternative currency.
The U.S. equities recovered over 100 percent from the low of 2008 thanks to the two rounds of QE and the latest Operation Twist by the Fed. What will happen to the markets when the artificial stimulants are withdrawn or the appetite of the markets requires a bigger stimulus? The effects will be like an addict trying to satisfy his addiction.