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Fed cuts discount rate by 50 basis points

18 Aug '07
2 min read

Finally a green day! The Fed started things off on a good note by cutting the Federal Reserve discount rate by 50 basis points and making the surprise announcement before the market opened.

The overnight activity in Japan and other foreign markets was negative and Bernake and the Fed were probably trying to avoid further downside in the U.S. market based on concerns about the subprime financial problems.

Volume was good at 32,000 futures and 22,000 options as the market tried to consolidate after the limit down day on Thursday.

Cotton was not open overnight after several problems with fills yesterday so there was much anticipation before the opening as most felt it would trade higher based on the strong bounce in the financial market.

That was the case as we opened higher and traded quickly up to the highs for the day @ 58.35, but soon failed and came back down to test the lows.

The rest of the day was spent in a fairly narrow trading range between 57.00 and where it eventually closed at 57.50. Electronic post close activity added a few more points to close at 57.90 and we will see if we can build on that momentum on Monday.

Technically we have a new flagpole and we will watch next week closely to see how the grains and financial markets react to the correction.

There is still plenty of uncertainty in the weather and financial markets which will play a role next week. But short term it looks like a bottom maybe in place and we will have to wait and see how successful the market is in testing the upside.

RSI is 28 which is in oversold territory, but the specs still have a significant long position and we are seeing steady but not panic buying from mills, so it is too early to say that the downside trend has found a bottom.

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