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The Fed Removes cash from the market
I was reviewing my Fed alerts for their open market activity today and was completely surprised by one word in a subject line. That word was "drains." The Fed actually initiated what is called a "reverse repo" agreement today, which is the opposite of a "repo"...(thank you Captain Obvious.) A reverse repo pulls cash out of the systems. That's right, the Fed pulled cash out of the US economy! In fact, they pulled $7.25 billion out of the market. I don't think I was the only one that was shocked because I got a correction from the Fed a few minutes later when whoever sends those alerts out forgot to include the actual details of the transaction. Depending on how long they have worked there, they may have never seen that before ;) Just in case that is all "Greek" to you (or if you are Greek then I guess it may sound like Swahili or something) a reverse repo is something that the Fed does in the open market when it is buying and selling securities. The Fed does this everyday to manage the target interest rate. However, they haven't entered into a transaction to temporarily remove money from the market since May 10th of 2007. The problem in the US has been not enough liquidity. They have been adding money to the system over the past year. I realize that one day or one transaction does not make a trend but this is interesting stuff and could indicate that there is a fundamental shift, no matter how small, in the current risk environment. Traders need to know because if the dominant trends reverse or correct, we can take advantage of it. Right now, this is an alert from a fundamental perspective to be watching for those signs. I think specifically this could make the CHF and JPY vulnerable. For more commentary and strategies in the FX market, click here: [url]http://www.pfxglobal.com[/url]
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