SP500 further gains and USD further weakness still on the cards.

QE is now done and dusted, the market was not disappointed, and the green light has been given for equities to rally and the USD to weaken further. On the face of it, that is how it seems, and until I see anything to tell me otherwise I think that is the way forward for now. -- I say this as someone who does not look through rose-tinted glasses and think everything is alright for now, far from it, I think dark times lay ahead. The US economy as well as most other major western economies are in a mess caused by such excessive levels of debt, that it will takes years, perhaps tens of years to work off. - The ideal would be for moderate levels of inflation to ensue for a number of years, not too hot/not too cold, but enough to raise asset values, whilst growth increases employment, and consumers, governments and municipals are able to repay debt and banks continue to repair their balance sheet. At the same time the emerging or emerged economies can continue to grow, whilst their currencies revalue over time and the world starts to re-balance.  At which point all the fairies at the bottom of my garden could hold a little party and perhaps invite Father Christmas.....

As I stated above, there seems little in the wake of the way the market has reacted to the QE announcement thus far to alter my short-term view, the SP500 has run into the consolidation zone from April this year, which may provide some resistance, but I see little else currently standing in the way of higher equities levels right now. 

GBPUSD FX still seems on course for an attempt at the 1.6700 area, as per Tuesday's analysis. The Cup and Handle pattern has held the 1.6000 line (despite a brief intraday dip below), and looks to be following the textbook behaviour of this pattern. - See chart below - The text book pattern and Tuesday analysis can be seen here. 1.6000 should now act as solid support; much below there is likely to be indicative of a failed breakout.

The weekly chart is also supportive of this move (See chart below).  Note, there is heavy resistance from a number of sources around 1.6700, if GBPUSD reaches these levels this will likely be a major battleground between further gains, and a correction all the way back to 1.6000.  

'Inner Circle' research survey on Fed QE

There is only one topic of discussion, I am not going to try and predict what happens in the minutes and hours post tonight's FOMC meeting. However I have received a good piece put together by a leading research house, it is a survey of some leading players (Inner Circle) in the treasury market and what they think may happen tonight in regard to the Fed's action and likely reaction.

** *The Survey ***

1.Q- How much do you thing the Fed will ultimately buy....?

A- The average came to $862 bn, with several respondents indicating a bias to more if conditions warranted.

2. Q-How long will they buy for....?

A-The consensus says for the next 10 months.  The devil is in the details with the focus on the next six months, about $100 bn per month, and then tapering off in H2 of 2011.

3.Q- Will the FOMC offer a degree of shock and awe, i.e. $100 bn for each month for the next several months and then review, or something more open?

A-The answers were interesting.  On the one hand, overwhelmingly people felt the statement would offer a high degree of flexibility and therefore be somewhat vague and open-ended.  This could prove a bit
disappointing and the point was made to us.  On the other hand there were several who felt the lack of shock and awe in terms of size could or would be offset by the Fed changing the language about 'extended
period' by  extending it even further or perhaps put explicit focus on a sector, i.e. the belly.

4. Q-With 10s at 2.61+%, how much is priced in (name a figure)?

A-This was tough as we got percentages, basis points, and dollar amounts.  Dollar amounts got the most responses and so with that we offer that this survey says $400 bn in priced in.

5.Q- If they buy 500 bn, how much lower can 10-yr rates go?  1 trillion?

A-The consensus came to 2.35% for $500 bn and 2.10% for $1 trillion.

6. Q-How will you position going into the meeting?

A-54% or those who responded (a majority) said long and/or in a flattener.  35% said flat.  And 11% said short or in a steepener.

7. Q-What are you expecting to do coming out of the meeting?

A-31% of the respondents said 'Wait' or 'Watch' with some saying they'd follow the action.  21% said they would buy with 18% apparently thinking the same way only they said they would buy pullbacks.  26% said they planned to sell strength.