Despite an FOMC statement which made no direct reference to scaling back on the current pace of FED balance sheet expansion, the revisions to the FOMC’s central tendency forecast for the unemployment rate put markets on notice for some guidance from Fed Chairman Bernanke as to when the process of tapering could begin. Tapering was not a word Bernanke chose to use but he made it abundantly clear that, based on the latest FOMC forecast, the Fed is expected to start scaling back on its monthly purchases before the end of the year and to cease net new Bond buying completely by the middle of 2014. Of course this projection had caveats about being highly data dependent and also conditional on Financial market conditions. He did however make it clear that yesterday’s FOMC outcome was arrived at with full cognisance of the financial market volatility evident in recent weeks. As for the new Fed forecasts, the mid-point of the central tendency for the unemployment rate is lowered to 7.25% for end 2013 and to 6.65% for 2014 whilst 2015 is now 6%. The Fed retained its guidance that it does not expect to start raising rates until unemployment hits 6.5% and Bernanke made it clear that the majority of FOMC members expect this not to occur at least until early 2015.
Market reaction to the FOMC outcome and press conference has been fierce with US equity markets loosing 1.4% whilst 10 Year Treasuries have risen 16 basis points to 2.36%.
Today on the economic front we will get some significant data out of both Europe and the US notably flash Euro-zone PMI’s, UK Retail Sales, US Weekly Jobless Claims, US Preliminary PMI Existing Home Sales and the Philly Fed Survey.Today promises to be another wild trading day.
September S&P 500
The market did indeed have a lot of good news priced in as I mentioned yesterday and after a lot of choppy trading until Bernanke finished his press conference the market broke hard and closed on its lows and is now down again in early European trading. I bought the S&P at 1631 and I was quickly stopped out for a small loss at 1628 and I am now flat. The fact that it closed below 1628 is bearish and given the amount of economic data out today it promises to be another wild trading day. I am only trading in small size and today I will be a small seller on any rally back to 1620/1628 with a 1631 stop. My only interest in buying the market is if we dip down to 1598/1603 with a 1595 stop which is just below the lows made over the last two weeks and should offer some support. However a break and close below 1595 will be very bearish.
Euro/USD
The Euro broke very quickly after the FOMC announcement and the market had traded through my tentative buy and stop level by the time I could look at the the Euro and for this reason I did not do a Euro trade and I am still flat. The big question from here is ‘has the Euro topped against the US Dollar or are we going to have another test of 1.34 before sellers return?’. The Euro had been up for six of the last seven days until yesterday and for the last four consecutive weeks so the market was due a sell-off. The next main support is at 1.3180 and a closing break below here will be bearish. Today, given how strong this 1.3180 is, I will be a small buyer on any dip to 1.3170/1.3195 with a 1.3155 stop. My only interest in selling the Euro is if we rally back to 1.3280/1.3310 with a 1.3330 stop.
June DAX
The Dax plan worked out because, as I said yesterday, a break below 8180 would be bearish. I sold the Dax, in small, at 8169 and I covered my position this morning at 8045 and I am now flat. Today I will be a small seller on any rally back to 8110/8140 with a 8185 stop. I do not want to be long the Dax at this time.
June FTSE
I did not trade the FTSE yesterday and I am very surprised how weak it is trading. The next support level is nearby at 6220 and a break and close below here will be very bearish. Today I will be a small buyer from 6200/6220 with a tight 6190 stop.
September BUND
The Bund worked well yesterday as we had a nice rally ahead of the FOMC and I was able to cover my 143.25 long position at 143.65 and I am now flat. The Bund got hammered after the FOMC announcement as it followed US Treasuries lower. It is oversold and is now approaching the very important support at 141.80/142.10 where I will be a buyer with a 141.65 stop.
September Nasdaq 100
The Nasdaq also worked well yesterday as the market dropped down to 2960 where I was able to cover my 2995 short position from Tuesday and I am now flat. Today I will lower my buy level to 2900/2920 with a 2190 stop. I do not want to be short the Nasdaq at this time.
Silver Rolling Contract
Silver has also got slammed over the last week and is now approaching the April low of 20.20. I have bought Silver this morning at 20.40 and I will leave a 19.90 stop on this position. If I am stopped out I will be a more aggressive buyer in front of 19.50 with a 18.95 stop.
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