Thursday, September 24, 2009

Assistant Secretary Allison Written Testimony Before Senate Banking Committee

Assistant Secretary for Financial Stability Herbert M. Allison, Jr.
Written Testimony
Senate Committee on Banking, Housing and Urban Affairs

Chairman Dodd, Ranking Member Shelby and members of the Committee, thank you for the opportunity to testify today. As we approach the one-year anniversary of the Troubled Assets Relief Program or TARP, I welcome this chance to update you about the progress we have made in restoring our financial stability.

A year ago, we were in the midst of one of the worst periods in our financial history. Fannie Mae and Freddie Mac were taken into federal conservatorship; Lehman Brothers went bankrupt and AIG nearly followed; Wachovia, Washington Mutual and Merrill Lynch were sold in distress; and weakness at a prominent mutual fund sparked a dangerous "run" on money market mutual funds. Credit markets froze as banks refused to lend, even to one another. Immediate, strong action was needed to avoid a complete meltdown of the system.

On October 3, 2008, Congress rose to this challenge by passing the Emergency Economic Stabilization Act of 2008. With the leadership in particular of many of you on this Committee, Congress recognized the need to take difficult but necessary action and gave the Treasury Department unprecedented authority to stabilize the U.S. economy by creating TARP.

Policy interventions executed last Fall by the Treasury Department and the federal banking regulators, succeeded in achieving the critical, but narrow objective of preventing a catastrophic collapse of our financial system. But when President Obama took office, the financial system remained extremely fragile and the Administration faced a rapidly evolving set of grave challenges.

In January 2009, what we faced was no longer just a financial crisis; it was a full-blown economic crisis. In January alone, 741,000 Americans lost their jobs, the largest single month decline in 60 years. Home foreclosures were increasing at a rapid rate. Businesses and families were struggling to find credit. It was feared that those banks that remained standing had too little capital and too much exposure to risky assets. Secondary markets for credit had essentially come to a halt; and liquidity in a broader range of securities markets had fallen sharply. In a matter of three months, American families had lost $5 trillion in household wealth.

In short, the economy was in a free fall and there was increasing concern we were headed towards a second Great Depression.

The Obama Administration confronted this situation by taking forceful action on several fronts. Again, with the leadership of many of you on this Committee, a comprehensive strategy was put in place to stabilize the financial system and the housing market, to stimulate economic activity, and to provide help to those in most need. And as a result, we have stepped back from the brink. We still have a long way to go before true recovery takes hold, but we are now pointed in the right direction.

TARP has been vital to our achievements to date, and it will continue to be an important part of our recovery. Today, I want to discuss what Treasury has done under TARP and how we have measured our success or failure. I also want to discuss what we still need to do, because our situation requires continued action and vigilance. The recovery has just begun, the financial system remains fragile, and the credit markets are not fully functioning. And with unemployment still unacceptably high, home foreclosures still rising, and many Americans still suffering through no fault of their own, we still have work to do.

Overview

Although much remains to be done, we believe that TARP has worked to stabilize the financial system and lay the foundation for economic recovery. , Treasury used its authority under EESA to make investments that have helped to stabilize our system, restore confidence in our banks and restart markets that are critical to financing American households and businesses. In addition, we have begun to stabilize the housing market and help people avoid foreclosure. These efforts are part of the Administration's Financial Stability Plan, designed to recapitalize our financial system with as much private capital and as little taxpayer funding as possible.

EESA authorized $700 billion for TARP. As of September 21, 2009, Treasury has announced plans to provide $644 billion for specific TARP programs. Of that amount, we have entered into commitments of $444 billion, and we have disbursed $365 billion.

A large part of the total activity to date occurred last fall under the Capital Purchase Program (CPP) following the adoption of EESA in October 2008. The more recent commitments include amounts extended under the Obama Administration's Financial Stability Plan.

Let me highlight some of the major support provided under TARP.

Capital Purchase Program

CPP was the first of the programs implemented under TARP. Through CPP, Treasury has provided capital to 679 financial institutions across 48 states. This program was designed for financial institutions of all sizes and has invested in over 300 small and community banks. CPP has been essential to stabilizing our financial system. The capital provided has enabled banks to absorb losses from bad assets while continuing to lend to consumers and businesses. To encourage continued participation by small and community banks, the application window for CPP was reopened on May 13, 2009 for banks with fewer than $500 million in assets. In addition, we continue to invest in smaller banks on a regular basis.

In addition to the CPP, Treasury also worked with the federal banking regulators to develop a plan for "stress tests". This was a comprehensive, forward looking assessment of the capital held by the largest 19 US banks. The design of the tests and their results were made public, a highly unusual step that was taken because of the unprecedented need to reduce uncertainty and restore confidence. We also announced that we would be prepared to provide additional capital through the Capital Assistance Program.

Since the stress test results were released in early May, banks of all sizes have raised over $80 billion in common equity and $40 billion in non-guaranteed debt. Importantly, that capital raising has enabled more than 30 banks to repay the TARP investments made by Treasury. We have received over $70 billion in principal repayments, and over $6.5 billion in dividends, interest and fees from CPP participants.

In addition, several banks have repurchased the warrants issued to Treasury in connection with repaying the TARP investments. Treasury obtained warrants with each investment in order to provide the taxpayer with an opportunity to participate in the potential recovery of these financial institutions. To date we have received almost $3 billion from the repurchase of warrants. The rate of return to the taxpayer on the investments made in all those institutions that have fully repaid the Treasury and repurchased the warrants to date is approximately 17%. I should note that our returns to date are not necessarily an indication of what our returns will be overall for this program, but this is a good beginning.

When President Obama took office, the Treasury had outstanding commitments to banks under the CPP and other programs of $239 billion. Since mid-January, we have invested $11 billion in more than 350 institutions, while receiving the repayments noted above of $70 billion. Thus, since January, we have reduced the size of the Treasury's investments in the banking system by $59 billion to $180 billion. We now estimate that banks will repay another $50 billion over the next 12 to 18 months.

Public-Private Investment Partnership

To help clean up the balance sheets of major financial institutions and restore liquidity to key markets for financial assets, we proposed the creation of a public-private investment program for the purchasing of legacy loans and securities. Since the announcement of the program, non-agency mortgage-backed securities have gone up substantially in price. Prime fixed rate securities issued in 2006 that traded as low as $60 in March have increased in value by over 40 percent as additional liquidity has come back to the markets. That improvement in financial market conditions has created the positive backdrop to enable us to proceed with the program at a scale smaller than initially envisioned.

Following a comprehensive application, evaluation and selection process, during which Treasury received over 100 unique applications to participate in PPIP, in July, Treasury pre-qualified nine fund managers to participate in the program. These managers have extensive experience with legacy assets. In addition, these firms have committed to utilizing small business and minority-owned firms in this process.

Treasury expects to provide approximately $30 billion in equity and debt financing to special purpose entities formed by the fund managers in the initial phase of PPIP. Initial closings are currently scheduled for the end of this month.

Due to the possibility of actual or potential conflicts of interest inherent in any market-based investment program, Treasury has worked very closely with the Special Inspector General for the Troubled Assets Relief Program (SIGTARP) to develop a robust conflicts and compliance process.

Term Asset-Backed Securities Loan Facility

One of the many lessons of this crisis is the importance of a properly functioning securitization market to the availability of credit for consumers and small businesses. The Term Asset-Backed Securities Loan Facility (TALF) has been a successful effort to help restart those markets after the crisis. Opened in March 2009, TALF is a lending facility operated by the Federal Reserve Bank of New York (FRBNY) under which FRBNY provides term non-recourse loans collateralized by certain types of AAA-rated asset-backed securities (ABS). Treasury has consulted in the design of the program and will provide up to $20 billion for the purchase of ABS in the event of a default.

I am pleased to report that, since March, a total of $ 79.6 billion of new TALF-eligible ABS has been brought to market, of which $ 46.5 billion was funded using TALF loans. This aid to the securitization market has had a decided impact on liquidity, spreads, and the availability of consumer and small business credit.

Making Home Affordable Program

A central part of the President's Financial Stability Plan is our effort to stabilize the housing market. Announced on February 18, the Making Home Affordable Program (MHA) offers assistance to millions of homeowners by reducing mortgage payments and preventing avoidable foreclosures. MHA gives homeowners the opportunity to modify their mortgages as well as an opportunity to refinance GSE loans, which in each case can lower monthly payments and enable homeowners to avoid foreclosure.

The mortgage modification program is known as Home Affordable Modification Program, or HAMP, and is funded through TARP and the Housing and Economic Recovery Act of 2008 (HERA). It is designed provide assistance to up to 3-4 million eligible homeowners before the end of 2012. We have signed contracts with 57 servicers, including the five largest. Between loans covered by these servicers and loans owned or guaranteed by the GSEs, more than 85 percent of all mortgage loans in the country are now covered by the program. As of September 9, more than 360,000 trial modifications are underway and 570,000 trial modifications have been offered under this program. We have frequent contact with the servicers to discuss ways of increasing borrower participation in HAMP. At a meeting with participating servicers on July 28, servicers committed to reaching a cumulative target of 500,000 trial modifications by November 1, 2009. I am pleased to report that we are on pace to meet this goal, potentially even ahead of schedule. The participating servicers also agreed to work with Treasury to implement actions designed to improve program effectiveness, including the streamlining of application documents. In addition, we have focused on transparency and servicer accountability by publicly reporting servicer-specific results on a monthly basis. Treasury is also working to establish specific operational metrics to measure the performance of each servicer. We will be meeting with the servicers again next month to review progress and address ongoing concerns. Treasury realizes that the housing market is vital to the ongoing economic recovery and that many people are still in dire circumstances. We will continue to work to make sure that these programs provide relief to those affected.

Automotive Industry Financing Program

The Automotive Industry Financing Program (AIFP) was developed in December 2008 to prevent a significant disruption of the U.S. automotive industry, because of the risks such a disruption posed to the financial system and the economy as a whole. To date, Treasury has provided approximately $76 billion in loans and equity investments to General Motors, Chrysler and their respective financing entities. After the previous Administration provided initial assistance last year, the Obama Administration required the companies to develop long-term reorganization and viability plans before Treasury would provide additional assistance. Moreover, Treasury rejected the initial plans proposed by the automakers and required the companies to develop plans to become leaner and more efficient. We believed this was the only way the companies could become more competitive and the only way to protect the taxpayers' investment. The assets of both GM and Chrysler were sold to newly created entities through the bankruptcy courts in exceptionally fast and efficient proceedings. The new companies are now leaner and more efficient and poised to help further the ongoing economic recovery and the competitiveness of the American automotive industry.

Treasury's Role as Shareholder

As a result of the financial crisis, the government has had to intervene in the economy in unprecedented ways, and I know many people have questions concerning the role of the government as a shareholder in private companies. The Obama Administration has given this subject careful thought, and I would like to explain the fundamental principles that govern our actions as a shareholder.

First, the U.S. government is a shareholder reluctantly and out of necessity. We intend to dispose of our interests as soon as practicable, with the dual goals of achieving financial stability and protecting the interests of the taxpayers.

Second, we do not intend to be involved in the day-to-day management of any company. Our responsibility is to protect the taxpayers' investment. Government involvement in the day-to-day management of a company might actually reduce the value of these investments, impede the ability of the companies to return fully to being privately owned, and frustrate attainment of our broader economic policy goals.

Third, consistent with these goals, we will take a commercial approach to the exercise of our rights as a shareholder. We will vote only on four core matters: board membership; amendments to the charter and by-laws; liquidations, mergers and other substantial transactions; and significant issuances of common shares.

Daily Concerns

I also want to discuss three concerns that I focus on every day, that are central to our duty to protect the taxpayer. The first is, do we have the proper controls in place to ensure accountability? Second, are we being good stewards of the taxpayers' money? And third, are we communicating what we are doing in a transparent and timely manner?

First, we know that proper controls are critical to protecting the taxpayers' interest. In addition to review by this and other Congressional committees, EESA provides for oversight of TARP by four oversight bodies, and Treasury takes its responsibilities to these oversight bodies very seriously. Treasury personnel spend a significant amount of time meeting and communicating with these four oversight bodies (the Special Inspector General for TARP (SIGTARP), the Congressional Oversight Panel, the Financial Stability Oversight Board and the Government Accountability Office (GAO)), as well as with Congress. I meet weekly with SIGTARP to discuss our current activities and their concerns, and my staff is in constant contact with the SIGTARP staff. Treasury has fully or substantially implemented over 75 percent of the recommendations made by SIGTARP. We have also involved them early in the process of design of a program or investment so that we get the benefit of their suggestions at the outset.

Personnel from the Office of Financial Stability meet regularly with the other oversight bodies as well, and Treasury has given careful consideration to each of their recommendations. The GAO has consistently noted the progress Treasury has made in meeting its recommendations.

In the unusual cases where we have declined to implement a recommendation, we have sought to reach the recommendation's objectives by other means that we consider to be more practical, effective or supportive of achieving financial stability, and have explained our approach to the oversight bodies. In those unusual situations, we have explained our reasons to the oversight body and to Congress in detail.

In addition, OFS is audited by the GAO and will publish its first set of annual financial statements on November 16th.

Second, we have been both careful and assertive stewards of the taxpayers' money. We do not make an investment unless it complies with the statutory requirements, is necessary to restoring or maintaining financial stability and is made on terms that protect the taxpayer. Since the Obama Administration took office, Treasury has provided $144.42 billion in TARP assistance, and has received repayments, dividends, interest and other payments in the amount of $70.56 billion. In the attached report is a chart detailing TARP investments made by month. You will note the general downward trend in the gross amount of capital expended.

Third, as I committed in my confirmation hearing, we have taken many steps to communicate in a fully transparent and timely manner. We have never missed a deadline for a report. As of September 18, 2009, Treasury has published 83 Transaction Reports, 10 Section 105(a) monthly Congressional Reports, 7 Tranche Reports, 3 dividend and interest reports and 2 MHA Program Reports, all of which are posted on our website. We have recently completely revised the format of our monthly Section 105(a) report, a copy of which is attached. As you will see, it presents updates on our investments and programs as well as background information in a far clearer, more concise manner. It answers basic questions that many Americans have, such as: how are TARP monies invested?

We have also published a monthly lending survey that contains detailed information on the lending and other activities of over 500 banks that have received TARP funds, as well as separate information for the largest 22 banks. These reports are intended to help the public easily assess the lending and intermediation activities of participating banks. More broadly, they also help answer the question of what banks are doing with their TARP funds. We believe the detailed quantitative information contained in these reports addresses the fundamental concern underlying that question, which is whether TARP has helped restore our banks to health so that they can lend to creditworthy families and businesses. Beginning next month, we will be expanding the report in response to suggestions from SIGTARP for reporting on use of funds.

Additionally, we post program guidelines on our website, www.financialstability.gov, within two business days of any program launch. We also post for public review all obligations made under TARP as well as all contracts with Treasury service providers involved with these programs. We recognize that transparency is paramount when managing taxpayer funds.

Exit Strategy

TARP was designed as an emergency response to a major financial crisis, and I would like to address what Treasury sees as some of the next steps for TARP. Because financial conditions have started to improve, Treasury has already begun the process of exiting from some emergency programs. But how and when we exit will vary by program. For example, as I noted earlier, Treasury has received over $70 billion in principal repayments from CPP participants. Treasury has also almost $3 billion in warrant proceeds from the repurchase of warrants by banks that have already repaid the principal investment. For those banks that have elected not to repurchase their warrants, Treasury intends to begin auctioning those warrants later this year. It will, however, be some time before all CPP participants have fully extinguished their obligations to the taxpayers.

Certain TARP programs have a defined life. For example, new lending under TALF is scheduled to cease in mid 2010, even though Treasury's credit support of the TALF facility will continue for a number of years. Although PPIP is just being launched, the investment period for the fund managers is limited to three years.

The Administration has established clear principles to ensure that our investments in the automobile industry and other companies that have received exceptional assistance are limited and temporary. Chrysler Financial has already repaid its assistance, and an initial public offering for GM is expected next year.

At the same time, we must remember that our economic recovery has just begun and significant parts of the financial system remain impaired. Declining prices in the commercial real estate market could put additional pressure on bank balance sheets and capital positions, while continued downward pressure on housing prices could stall a nationwide recovery. In this context, it is prudent to maintain capacity to address new developments. By bolstering confidence, having such capacity may actually reduce the need to use it.

As we look ahead, we must also not forget the lessons we have learned from this period. Reforming our regulatory system in a way that is stronger and better-suited to manage risk and ensure safety and soundness must be our highest priority. The Administration has proposed a number of measures in this regard that I know you are already considering as you work to address this important issue.

Conclusion

Financial stability is a necessary precondition to the resumption of economic growth. Treasury and other institutions of government have accomplished a great deal in a short amount of time to achieve this goal. However, we recognize that we have more work ahead of us on both the regulatory reform and economic fronts. TARP, the Office of Financial Stability, and the Office of Domestic Finance have been essential to President Obama's and Secretary Geithner's plans for financial stability and economic recovery.

Ending the financial crisis is not primarily about helping banks, but about restoring the flow of credit to consumers and businesses and alleviating the real hardships that Americans face every day. Healthy and vibrant financial institutions are critical for this, as they are the key sources of a range of financial services that we depend on every day. Without healthy banks, consumers cannot access the credit they need to buy a home, finance an education, manage everyday expenses or make other financial commitments. Small businesses cannot buy the new equipment, raw materials and inventory that they need to expand. Larger businesses cannot make the continuous adjustments required to function in a changing global marketplace.

It is with these goals in mind that we have created the programs under the TARP and the Financial Stability Plan. As I work with my dedicated colleagues in Treasury on these programs, I will strive to continue to be a prudent investor on behalf of the American people.

Thank you.

Gold & Silver Comments

Despite expectations of a cautious approach as investors were awaiting the Federal Open Market Committee's announcement, gold started the session on the defence largely on the back of a strong rebound in the US currency. A weaker tone in equity markets combined with a violent sell off in crude have exacerbated the downward move later on and consequently gold lost $7.95 for the day. Silver showed even more weakness than gold in percentage terms losing 38 cents to settle at $16.820/oz. However, both precious metals appear to be locked in a range in the last 5 days or so. It remains to be seen if this is a consolidation phase or the upside momentum run its course at least on the short term.

Energy and Precious Metals Technical Analysis

Gold

Gold is moving between the two key levels today 1006.00 and 1013.00 -127% Fibonacci of XA leg- for the duplicated bearish harmonic pattern. Hence, we still keep our overview to the downside based on yesterday's negative closing below the mentioned Fibonacci level. A break of 1006.00 will confirm our anticipation, supported by momentum and trend indicators' negative signs.

The trading range for today is among the key support now at 976.00 and key resistance now at 1060.

The general trend is to the upside as far as 820.00 remains intact with targets at 1035.00 and 1044.00.

Support: 1009.00, 1006.00, 1002.00, 998.00, 992.00
Resistance: 1017.00, 1022.00, 1025.00, 1033.00, 1035.00
Recommendation: Our mornig expectations remain valid

Silver

Silver is trapped below the key resistance level over intraday basis at 16.85, supporting the bearish anticipation for today which is based on the bearish harmonic pattern. The negative signs on indicators support that further bearishness is to come. A break to the momentum trend line will confirm the scenario.

The trading range for today is among the key support at 15.50 and key resistance now at 17.90.

The general trend is to the upside as far as 10.95 remains intact with targets at 18.50.

Support: 16.65, 16.60, 16.55, 16.47, 16.36
Resistance: 16.80, 16.85, 16.98, 17.05, 17.15
Recommendation: Our mornig expectations remain valid


Crude oil is trading within a narrow range ever since this morning, where it hasn’t been able to go through the awaited bullish correction till now, while trading continues to surround the main support level 68.00. Our morning expectations remain intact, for a bullish correction not exceeding 70.00 and then trading will reverse to the downside breaching the key support level at 68.00 opening the way to head towards 61.00 - 63.00 levels. However, the new downside move requires the daily closing to remain below level 70.00.

The trading range for today is among the key support at 65.20 and the key resistance at 73.00.

The general trend is to the upside as far as 47.20 remains intact with targets at 85.00.

Support: 68.00, 67.00, 66.30, 65.50, 64.65
Resistance: 68.85, 69.40, 70.00, 71.65, 72.10
Recommendation: Based on the charts and explanations above our opinion is buying oil with the breach of 68.85 and targeting 70.00 and stop loss below 68.00, might be appropriate

Ecpulse

Metal Futures Commentary

DECEMBER GOLD

December gold futures closed down $2.70 at $1,012.80 yesterday. Prices closed near mid-range on mild profit-taking pressure from recent gains. The gold market bulls still have the solid near-term technical advantage. The recent multiple closes above what was major psychological resistance at $1,000.00 an ounce are is a bullish signal that suggests the market has more room to run on the upside, but likely amid higher volatility. Gold bulls' next upside price objective is to produce a close above solid technical resistance at the July 2008 high of $1,028.00. Bears' next downside price objective is closing prices below solid technical support at $983.20. First resistance is seen at this week's high of $1,021.50 and then at last week's high of $1,025.80. Support is seen at yesterday's low of $1,007.20 and then at $1,004.20.

Wyckoff's Market Rating: 8.0.

Source: VantagePoint Intermarket Analysis Software

DECEMBER SILVER

December silver futures closed down 20.5 cents at $16.91 an ounce yesterday. Prices closed nearer the session low yesterday. Profit taking was featured yesterday. The key 'outside markets' were in a neutral posture for silver yesterday, as crude oil prices were sharply lower, the U.S. dollar was weaker and the U.S. stock indexes were firmer. Silver futures bulls still have the solid near-term technical advantage. Prices are in a 10-week-old uptrend on the daily bar chart. Bulls' next upside price objective is closing prices above solid technical resistance at $18.00 an ounce. The next downside price objective for the bears is closing prices below solid technical support at $16.00. First resistance is seen at $17.00 and then at yesterday's high of 17.29. Next support is seen at yesterday's
low of $16.72 and then at this week's low of $16.525.

Wyckoff's Market Rating: 7.5.

DECEMBER COPPER

December N.Y. copper closed down 970 points at 276.75 cents yesterday. Prices closed nearer the session low yesterday and closed at a fresh five-week low close. Bulls faded yesterday. The key 'outside markets' were in a neutral posture for copper yesterday, as crude oil prices were sharply lower, the U.S. dollar was weaker and the U.S. stock indexes were firmer. Bulls still have the overall near-term technical advantage. The next downside price objective for the bears is closing prices below solid technical support at the August low of 264.25 cents. Bulls' next upside objective is pushing and closing prices above major psychological resistance at 300.00 cents. First support is seen at 275.00 cents and then at 272.50 cents. First resistance is seen at 280.00 cents and then at 282.50 cents.

Wyckoff's Market Rating: 7.0.

Jim Wyckoff

Technical Analysis for Major Currencies

EURO

The Euro versus Dollar pair neared the suggested target yesterday at 1.4875, yet the FOMC rate decision pressured the pair to the downside, after the incline was halted at 1.4844. The pair is currently facing the key support for the bullish channel, seen in the image above, alongside the 61.8% correction at 1.4700, where it seems like the pair is being oversold according to the stochastic indicator. All this makes us believe the pair is to incline on the intraday basis; targeting the breach of 1.4844 in an attempt to head towards 1.5000 only if 1.4610 remains intact for today.

The trading range for today is among the key support at 1.4465 and the key resistance at 1.5000

The general trend is to the upside as far as 1.4135 remains intact with targets at 1.6000

Support: 1.4700, 1.4665, 1.4610, 1.4565, 1.4515
Resistance: 1.4745, 1.4790, 1.4845, 1.4875, 1.4900

Recommendation: Based on the charts and explanations above, our opinion is buying the pair from 1.4700 to 1.4840 and stop loss below 1.4610 might be appropriate

GBP

The Cable faced a strong resistance at 1.6465, which reversed the pair to the downside in correctional movements supported by signs seen on the stochastic indicator, where we expect it to reach the 61.8% correction at 1.6265 before rebounding back to the upside to complete the bullish technical pattern, highlighted in the image above. From here, we expect the pair to incline breaching the 1.6445 resistance level and opening the way towards 1.6600. The stochastic indicator is entering oversold areas, which supports our overview and will be confirmed as far as 1.6190 is intact.

The trading range for today is among the key support at 1.6000 and the key resistance at 1.6740

The general trend is to the upside as far as 1.4840 remains intact with targets at 1.7100

Support: 1.6300, 1.6265, 1.6190, 1.6155, 1.6095
Resistance: 1.6390, 1.6445, 1.6500, 1.6600, 1.6635

Recommendation: Based on the charts and explanations above, our opinion is buying the pair from 1.6265 to 1.6445 and stop loss below 1.6190 might be appropriate.

JPY

The USD/JPY pair was limited between the 50% and 38.2% correction, in an attempt to gather enough momentum to continue the short term downside trend, where we see a bearish crossover on the stochastic indicator supporting the decline for today to breach 90.50 and open the way to target 88.65 as far as 91.75 is intact.

The trading range for today is among the key support at 88.20 and the key resistance at 94.70

The general trend is to the downside as far as 102.60 remains intact with targets at 84.95 and 82.60

Support: 90.50, 90.15, 89.35, 88.65, 88.20
Resistance: 91.25, 91.50, 91.75, 92.10, 92.55

Recommendation: Based on the charts and explanations above, our opinion is selling the pair with the breach of 90.50 to 89.70 and stop loss above 91.20 might be appropriate.

CHF

The Dollar versus Swissy pair breached the 38.2% correction to halt at the 50% correction at 1.0285. The stochastic indicator is trending within an overbought area, which supports the decline on the intraday basis heading towards the breach of the key support for the short term bearish channel with targets at 1.0000 as far as 1.0325 remains intact.

The trading range for today is among the key support at 1.0000 and the key resistance at 1.0550

The general trend is to the downside as far as 1.1225 remains intact with targets at 0.9600

Support: 1.0200, 1.0135, 1.0080, 1.0000, 0.9935
Resistance: 1.0285, 1.0325, 1.0385, 1.0425, 1.0480

Recommendation: Based on the charts and explanations above, our opinion is selling the pair from 1.0285 to 1.0200 and stop loss above 1.0340 might be appropriate

CAD

The 1.0655 level was able to halt further declines for the Loonie resulting in a rebound to the upside in correctional movements towards the 61.8% correction at 1.0775, taking the stochastic indicator into overbought areas, where our expectations are for a decline on the intraday basis targeting the breach of 1.0655 before heading towards 1.0000 as far as 1.0805 remains intact on the four hour charts.

The trading range for today is among the key support at 1.0425 and the key resistance at 1.0970

The general trend is to the downside as far as 1.1870 remains intact with targets at 1.0300

Support: 1.0700, 1.0655, 1.0625, 1.0565, 1.0500
Resistance: 1.0775, 1.0805, 1.0850, 1.0885, 1.0935

Recommendation: Based on the charts and explanations above, our opinion is selling the pair from 1.0775 to 1.0655 and stop loss above 1.0850 might be appropriate.

Commodity Technical Analysis



BULLION

Gold closed lower due to profit taking on Wednesday as it consolidates some of this month's rally. The low-range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are overbought, diverging and are turning neutral to bearish hinting that a short-term top might be in or is near. If it extends last week's breakout above February's high, upside targets will be hard to project now that gold is trading into uncharted territory. Closes below the 20-day moving average crossing would confirm that a double top with February's high has been posted.

Silver closed lower due to profit taking on Wednesday as it consolidates some of the rally off July's low. The low-range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are overbought, diverging and are turning neutral to bearish signalling that a short-term top might be in or is near. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted. If it extends the rally off August's low, the 75% retracement level of the 2008-decline crossing is the next upside target.

U.S. STOCK MARKET INDICES

DJI closed lower due to profit taking on Wednesday as it consolidates yesterday's rally. The low-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI are overbought but remain neutral to bullish signalling that sideways to higher prices are possible near-term. SPI gapped down and closed lower due to profit taking on Wednesday. The low-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI are overbought but remain neutral to bullish signalling that sideways to lower prices are possible near-term. NDI closed lower due to profit taking on Wednesday as it consolidates some of this year's rally. The low-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI are overbought but remain neutral to bullish signalling that sideways to higher prices are possible near-term.

ENERGY

Crude Oil closed lower due to profit taking on Wednesday as it extends the late-summer trading range. The low-range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI a turning neutral hinting that sideways trading is possible near-term. Closes below the 20-day moving average crossing would temper the friendly outlook in the market.

Natural Gas closed higher due to short covering on Wednesday as it consolidates above the 25% retracement level of this year's decline crossing. The mid-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI remain neutral to bullish signalling that sideways to higher prices are possible near-term. If it extends this month's rally, the 38% retracement level of this year's decline crossing is the next upside target.

COFFEE

Natural Gas closed higher due to short covering on Wednesday as it consolidates above the 25% retracement level of this year's decline crossing. The mid-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI remain neutral to bullish signalling that sideways to higher prices are possible near-term. If it extends this month's rally, the 38% retracement level of this year's decline crossing is the next upside target.

HY Markets

Weekly Market Outlook

EUR/USD

EUR/USD Daily Chart :

Uptrend continuation since blue channel breakout has reached first profit point @ 1.4650.

While price remain above main pink channel, we may expect uptrend continuation towards 1.4850 and 1.4920 first. Two buy zones are validated for now : The 1.4510/60 support area backed by EMA18, and the daily lows congestion/support zone at 1.4650/80.

While above 1.4510 main support, recent uptrend remain intact. A break and daily close below this level may lead to a pullback to 1.4440 minor support and 1.4320 channel low.

No rebound on daily supports will lead to a test of main blue channel @ 1.4230, broken earlier in September

EUR/USD 4-Hours Chart :

Ascending wedge in place since September 8th is still active. Partial rotation has been seen at 1.4840 top and we await now a test of the lower trendline. Breakout lower (probability 82%) will lead to 1.4470 minimum calculated objective.

An upward channel has been formed since and price shows some respect at 1.4840 top. We may expect a test of channel lows around 1.4640/ Sustained break may lead to a 145 pips fall minimum calculated objective.

Three buy zones are validated for now : 1.4730 main support backed by old channel break and marubozu candle base. Below, weekly lows, ascending wedge baseline and support at 1.4610 may reject prices.

Break lower of such support will lead to a corrective move to 1.4470 - 1.4520 main support zone where a rejection higher is highly expected.

GBP / USD

GBP/USD Daily Chart :

Since Mid-August pullback into main range (1.61 - 1.66) both cluster support/resistance have been respected and generated strong rejections.

Falling wedge formation (blue) is still intact and last test of lower trendline rejected price. Main upside objective remain at 1.6620/60.

Daily close back inside minor pink channel may lead to further upmove, but price must hold 1.6330/40 support. A daily close above 1.65 broken channel is needed to validate recent upmove continuation.

Currently one buy zone has been validated on the 1.6130 / 1.6230 range low / channel low. Minor buying support is at 1.6330.

Sell zone at 1.6610/60 remain intact for now.

GBP/USD 4-Hours Chart :

50% fib. retracement of fall from August high and downward channel trendline have strongly rejected price to main blue/pink channel lows, witch was the main profit target.

Since, strong rebound has been seen towards the main sell zone witch remain valid at time of writing.

Price currently consolidates above downward channel. Sustained break of 38.2% fib. Level at 1.6550 may lead to another test of 50% fib. main resistance at 1.6550.

Pullback inside downward channel may lead to a fall towards minor trendline, fib support & EMA at 1.6320/50. Main target remain Sell zone at 1.6450.

Break below 1.6320 minor support exposes price to fall back towards main buy zone.

USD / JPY

USD/JPY Daily Chart :

Pullback into main bearish channel validated mid-August has been validated since ST corrective channel downside break occurred. Profit point on alternative bearish channel (dotted pink) has been hit and price since consolidates.

No chart parttern are clearly identified for now even if we expect a wedge formation to come.

The first Sell zone is still the 92.10/50 area where Bollinger bands and ST EMA have rejected prices. 90.20/50 remain the main profit point.

While above 90.00 psychological level, small bids can be done on Bands / Channel low tests.

Break and daily close above 92.50 fib. level will lead to a rise towards 93.50 - 94.30 cluster resistance where rejection is highly expected.

USD/JPY 4-Hours Chart :

A larger corrective move has been since last week, but overall downtrend remain intact. EMA 100 clearly rejected last upside attempt, and price now evolve in a corrective upward channel (pink).

We are currently expecting range moves to continue in the near-term.

90.20/70 act as a large support zone but we expect the channel low at 90.90 to be strong enough to reject price higher for a test of Bollinger bands highs where consolidation is expected.

First profit zone comes at 92.00/30 but we expect price to be able to test main resistance zone at 92.50/75 materialized channel high and EMA 200.

Sustained break of this resistance zone will warns of a tend change, while rejection by channel high will validate downtrend continuation.

WFXAdvisor

Dollar Spikes Lower Post FOMC, but Draws Support from Oil

Markets' reaction to Fed's announcement is quite positive with DOW spikes higher to 9917 before settling back. Dollar, on the other hand, spikes lower with the dollar index revisiting 75.89 key support level. Nevertheless, the greenback is somewhat drawing support from weakness in crude oil which dives through 70 again after unexpected rise in inventory. After all, it seems that dollar bears are hesitating for the moment and the greenback might continue to stay in range for some time first.

Fed left federal fund rates unchanged at 0-0.25% as widely expected and sounded optimistic on recovery. In the accompanying statement, Fed said the economy has "picked up following its severe downturn." The committee expects the current fiscal and monetary stimulus to support strengthening of growth and return to higher levels of resource utilization in context of price stability. Inflation is expected to remain subdued for some time.

The Fed pledged to continue to "employ a wide range of tools" to promote economic recovery and preserve price stability. Rates are 'warranted" at the current exceptionally low level for an "extended period". Fed said that it will "gradually slow the pace" of $1.45T purchase of agency mortgage-backed securities and agency debt and expects it to be completed by end of 2010 Q1. Purchases of $300 billion in Treasury securities will be completed by the end of October 2009.

FOMC Statement

Release Date: September 23, 2009

For immediate release

Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

federalreserve.gov

ENERGY MARKET RECAP

November Crude Oil closed down 3.50 at 68.26. This was 0.22 up from the low and 3.55 off the high.

November Heating Oil closed down 6.56 at 177.80. This was 0.21 up from the low and 7.35 off the high.

November RBOB Gasoline finished down 9.14 at 170.45, 8.65 off the high and 0.43 up from the low.

November Natural Gas finished up 0.22 at 4.74, 0.03 off the high and 0.24 up from the low.



Technical Outlook
CRUDE OIL (NOV) 09/24/2009: The major trend has turned down with the cross over back below the 60-day moving average. A crossover down in the daily stochastics is a bearish signal. Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The market back below the 18-day moving average suggests the intermediate-term trend could be turning down. The market is in a bearish position with the close below the 2nd swing support number. The next downside objective is now at 65.32. The next area of resistance is around 70.12 and 72.85, while 1st support hits today at 66.36 and below there at 65.32.

RBOB GAS (NOV) 09/24/2009: The close below the 60-day moving average is an indication the longer-term trend has turned down. A crossover down in the daily stochastics is a bearish signal. Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. The close below the 9-day moving average is a negative short-term indicator for trend. The close below the 2nd swing support number puts the market on the defensive. The next downside objective is 163.43. The next area of resistance is around 174.98 and 181.58, while 1st support hits today at 165.91 and below there at 163.43.

HEATING OIL (NOV) 09/24/2009: The upside crossover (9 above 18) of the moving averages suggests a developing short-term uptrend. A bearish signal was triggered on a crossover down in the daily stochastics. Stochastics trending lower at midrange will tend to reinforce a move lower especially if support levels are taken out. The close under the 18-day moving average indicates the intermediate-term trend could be turning down. The outside day down and close below the previous day's low is a negative signal. The market setup is somewhat negative with the close under the 1st swing support. The next downside target is now at 172.03. The next area of resistance is around 181.58 and 187.14, while 1st support hits today at 174.02 and below there at 172.03.

PRECIOUS METALS RECAP

December Gold closed down 1.1 at 1014.4. This was 7.2 up from the low and 1.8 off the high.

December Silver finished down 0.205 at 16.91, 0.2 off the high and 0.19 up from the low.

Technical Outlook
COMEX SILVER (DEC) 09/24/2009: Momentum studies trending lower from overbought levels is a bearish indicator and would tend to reinforce lower price action. The market's short-term trend is negative as the close remains below the 9-day moving average. The market setup is somewhat negative with the close under the 1st swing support. The next downside target is now at 1636.0. Bearish daily studies indicate selling minor rallies this session. The next area of resistance is around 1714.0 and 1750.0, while 1st support hits today at 1657.0 and below there at 1636.0.

COMEX GOLD (DEC) 09/24/2009: Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. A negative signal for trend short-term was given on a close under the 9-bar moving average. The market tilt is slightly negative with the close under the pivot. The next downside target is now at 998.6. The next area of resistance is around 1016.3 and 1024.9, while 1st support hits today at 1003.1 and below there at 998.6.

CURRENCY MARKET RECAP

December US Dollar closed up 0.28 at 76.630. This was 0.585 up from the low and 0.015 off the high.

December Euro closed down 0.6 at 147.3. This was 0.04 up from the low and 1.14 off the high.

December Japanese Yen finished down 0.14 at 109.51, 1.07 off the high and 0.21 up from the low.

December Swiss finished down 0.31 at 97.41, 1.79 off the high and 0.02 up from the low.

December Canadian Dollar finished down 0.76 at 92.82, 0.98 off the high and 0.02 up from the low.

December British Pound closed down 0.05 at 163.45. This was 0.17 up from the low and 1.22 off the high.

Technical Outlook
JAPANESE YEN (DEC) 09/24/2009: Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. The close below the 9-day moving average is a negative short-term indicator for trend. The daily closing price reversal down is a negative indicator for prices. The market's close below the pivot swing number is a mildly negative setup. The next downside target is now at 108.44. The next area of resistance is around 110.12 and 110.99, while 1st support hits today at 108.85 and below there at 108.44.

EURO (DEC) 09/24/2009: A bearish signal was triggered on a crossover down in the daily stochastics. Stochastics turning bearish at overbought levels will tend to support lower prices if support levels are broken. The market's close above the 9-day moving average suggests the short-term trend remains positive. The market could take on a defensive posture with the daily closing price reversal down. It is a slightly negative indicator that the close was lower than the pivot swing number. The next downside objective is now at 146.40. The next area of resistance is around 147.89 and 148.75, while 1st support hits today at 146.71 and below there at 146.40.

STOCK INDICES RECAP

December S&P closed down 13.3 at 1054. This was -1.5 up from the low and 21.5 off the high. December S&P E-Mini finished down 8.25 at 1059, 16.75 off the high and 3.75 up from the low.

December Dow finished down 51 at 9720, 135 off the high and 40 up from the low.


Technical Outlook
S&P 500 (DEC) 09/24/2009: The daily stochastics gave a bearish indicator with a crossover down. Daily stochastics turning lower from overbought levels is bearish and will tend to reinforce a downside break especially if near term support is penetrated. The market's short-term trend is positive on the close above the 9-day moving average. The outside day down is a negative signal. The market setup is somewhat negative with the close under the 1st swing support. The next downside target is 1041.90. The next area of resistance is around 1068.30 and 1081.90, while 1st support hits today at 1048.30 and below there at 1041.90.

S&P E-MINI (DEC) 09/24/2009: A crossover down in the daily stochastics is a bearish signal. Daily stochastics turning lower from overbought levels is bearish and will tend to reinforce a downside break especially if near term support is penetrated. A positive signal for trend short-term was given on a close over the 9-bar moving average. The outside day down is a negative signal. The close below the 1st swing support could weigh on the market. The next downside objective is 1041.75. The next area of resistance is around 1069.25 and 1082.75, while 1st support hits today at 1048.75 and below there at 1041.75.

NASDAQ (DEC) 09/24/2009: The daily stochastics have crossed over down which is a bearish indication. Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. The market's close above the 9-day moving average suggests the short-term trend remains positive. The daily closing price reversal down puts the market on the defensive. The swing indicator gave a moderately negative reading with the close below the 1st support number. The next downside target is 1697.00. With a reading over 70, the 9-day RSI is approaching overbought levels. The next area of resistance is around 1742.00 and 1765.00, while 1st support hits today at 1708.00 and below there at 1697.00.

DOW (DEC) 09/24/2009: Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The market's short-term trend is positive on the close above the 9-day moving average. The market has a slightly positive tilt with the close over the swing pivot. The next upside objective is 9821. With a reading over 70, the 9-day RSI is approaching overbought levels. The next area of resistance is around 9805 and 9821, while 1st support hits today at 9759 and below there at 9728.

BOND MARKET RECAP

December Bonds finished up 0-170 at 119-220, 0-030 off the high and 1-150 up from the low.

December 10 Yr Treasury Notes closed up 0-130 at 117-140. This was 0-255 up from the low and 0-025 off the high.

Technical Outlook
BONDS (DEC) 09/24/2009: The downside crossover (9 below 18) of the moving averages suggests a developing short-term downtrend. Stochastics trending lower at mid-range will tend to reinforce a move lower especially if support levels are taken out. The market now above the 18-day moving average suggests the intermediate-term trend has turned up. A positive signal was given by the outside day up. The market setup is supportive for early gains with the close over the 1st swing resistance. The next downside objective is 117-260. The next area of resistance is around 120-150 and 120-290, while 1st support hits today at 118-300 and below there at 117-260.

10 YR TREASURY NOTES (DEC) 09/24/2009: A negative indicator was given with the downside crossover of the 9 and 18 bar moving average. Declining momentum studies in the neutral zone will tend to reinforce lower price action. The market now above the 18-day moving average suggests the intermediate-term trend has turned up. Market positioning is positive with the close over the 1st swing resistance. The next downside objective is 116-130. The next area of resistance is around 117-285 and 118-045, while 1st support hits today at 117-010 and below there at 116-130.