Contrary to expectations, the US Federal Reserve left its asset purchase programme unchanged at $85 billion per month after the FOMC Meeting. The Fed wants to see more evidence that the recent improvement in the economy will be sustained before adjusting the pace of purchases. It is concerned that the rapid tightening of financial conditions in recent months could slow growth whilst fiscal concerns were also raised. In his press conference afterwards, Bernanke said that if the economy evolved as expected then tapering could begin later this year but he stressed that there was no fixed calendar and it is very data dependent. He also backed away from linking the end of QE to the unemployment rate reaching 7% as the lower participation rate is helping to push the unemployment rate down.
The FOMC also released their latest rate projections with the majority seeing the first move in the Fed Funds Rate not happening until 2015. They see rates at 1% for end 2015 and 2% at the end of 2016. The 2016 forecast was slightly dovish as the Fed lowered its 2014 GDP forecast to 3% from 3.25% previously. Unemployment and Inflation forecasts were little changed. Following the decision, the Dow and S&P 500 hit record highs with both markets closing up 0.9% and 1.2% respectively. The US 10 year Bond yield fell 20 basis points to 2.68 whilst the US Dollar Index plunged to 80.0 from 81.2, its lowest level since February. As a result of yesterday’s actions it is difficult to avoid the conclusion that the Fed has completely messed up its communication policy! So, we are now back to watching the incoming data and crucially there is only one Non Farm Payrolls release before the next FOMC Meeting on October 29-30.
This morning, on the economic front, we have UK Retail Sales at 9.30 am and this is followed at 1.30 pm by the US Weekly Jobless Claims and Current Account Balance. Later this afternoon we have the US Philly Fed and Existing Home Sales.
December S&P 500
Well I have to be honest I never expected the Fed to do what they did last night as Bernanke has been very open to the public and is not one for surprising markets. He is obviously very worried about the economy and economic growth going forward as he is now creating one of the greatest bubbles of our life time. I was flat ahead of the announcement and the market quickly traded up to my 1710 sell level before stopping me out of this position at 1716 and I am back to flat. The S&P is even more overbought after yesterday’s actions but Keynes’ famous saying ‘the markets can remain illogical longer than I remain solvent’ comes to mind. The next main resistance is from 1725/1730 and I will be a small seller in this zone with a 1735 stop. I will also be a small buyer on any dip to 1710/1714 with a 1707 stop.
Euro/USD
The US Dollar has now got hammered against the Euro with the Euro rising over 400 points higher in the last two weeks. This move in the Euro is not good for the periphery countries in the Euro-Zone. After the Fed announcement, the Euro quickly traded up to my 1.3450 sell level before stopping me out at 1.3470 and I am now flat. The fact the Euro broke and closed over 1.3450 is bullish short term and I will be a buyer on any dip to 1.3460/1.3480 with a 1.3440 stop. Given how overbought the market is I will be a small seller on any further rally to 1.3560/1.3590 with a 1.3610 stop.
December DAX
I have rolled from the September Futures Contract to the December Contract. The forward roll has the December Contract trading at 5 points higher than the September Contract. The Dax is making new all time highs again this morning and the next main resistance level comes in at 8800/8830 and I will be a small seller in this region with a 8850 stop.My only interest in buying the Dax is on a dip to 8600/8640 with a 8580 stop.
September FTSE
The FTSE worked very well yesterday as the market traded down to my 6560 buy level with a 6530 low before having a nice rally and I was able to cover this position after the announcement, at 6600, and I am now flat. The FTSE continues to underperform the other major indices and today I will be a small buyer from 6610/6630 with a 6580 stop. I do not want to be short the FTSE at this time.
December 10 Year Treasury Bond
The Bond plan worked well yesterday as the market finally traded down to my 123.80 buy level before the announcement and after a hugh rally I was able to cover this position at 125.40 and I am now flat. I am going to stand aside today as I want to see how the market reacts to this huge movement and I will still be a buyer on dips as the Fed have made it quiet clear they do not want to see Bond Yields rise as a rise in yields will affect the housing market and economic recovery.
December BUND
The Bund followed the US Bond market higher last night and traded up to my 138.75 sell level before stopping me out at 139.00 and I am now flat. Today I will be a small seller from 139.30/139.60 with a 139.80 stop. I still do not want to be long the Bund at this time.
Gold Rolling Contract
This market is certainly not for the fainthearted as Gold rallied over $70 from its low just before the FOMC announcement. I am glad I was flat. I am very impressed at the fact that Gold could break and close over 1350 again. Today I will be a small buyer from 1350/1360 with a 1343 stop. I do not want to be short Gold at this time.
Silver Rolling Contract
I was very lucky yesterday as Silver did not stop me out of my 21.50 long position and after a nice rally I was able to cover this position at 22.80 and I am now flat. The fact that Silver broke and closed over 22.50 is bullish and today I will be a small buyer on any dip to 22.50/22.75 with a 22.35 stop. Just like Gold above I do not want to be short Silver at this time.
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