Daily Recap - 02/18/2009

1. Despite a mixed bag of economic readings, the S&P managed to claw its way above 1100 to close at 1106. 
2. Unfortunately, it would seem like this "breakout" was doomed to fail - the Fed announced it will be raising its discount rate by 0.25% to 0.75%. This came as somewhat of a surprise and in after hour trading, stocks receded and, as expected, Financials were among the biggest losers. 
3. In my weekly review I wrote: "Any further comments from the Fed regarding its exit strategy should help maintain dollar strength, especially vs. the Euro and British pound" well - it happened and the dollar made fresh highs against the euro and the British pound (as well as other currencies)
4. At this point, we are likely to see further USD gains, especially against the weak euro and British pound.
5. It remains to be seen how the market will interpret the Fed's move. There is an unlikely scenario in which the move will be interpreted as a sign of strength - i.e. a Fed's vote of confidence in the recovery. However, at least in the short run, this move is much more likely to drag financials (and the broader market) lower as investors figure out the consequences.

-forexRoy