Markets are little changed this morning after the German Elections yesterday with Chancellor Merkel retaining power after securing 41.5% of the vote, for the largest majority since the Kohl reunification vote. Merkel will be the 4th Chancellor since the War to serve three terms. The Eur/USD and the Dax are little changed from closing prices on Friday as her victory was already priced in by the markets.
As for the Fed, speaking on Bloomberg TV on Friday, Fed President James Bullard (voter, dove) said that last Wednesday’s FOMC decision ‘was a borderline decision’ and that ‘it’s possible that you could get some data that changes the complexion of the outlook and could make the committee comfortable with a small taper of QE in October’. In a post FOMC survey last week 24 from 41 economists, surveyed in the US, expected tapering to be delayed until the December FOMC, as there is no scheduled press conference and published forecast at the next October 29-30 meeting and in fact won’t be until the December 17/18 meeting. Of course the decision as to whether to taper or not will depend on the flow of data, especially labour market and inflation data which lies at the heart of the Fed’s considerations.
This morning on the Economic front we have German and Euro-Zone PMI, Manufacturing and Services. This data will certainly move markets. Later from the US we have the Chicago Fed National Manufacturing Index and Preliminary PMI. This afternoon the Fed’s Lockhart is due to speak on the economy in New York and it will interesting to hear his take on tapering.
December S&P 500
The S&P had a very volatile session on Friday due the expiry of the September Futures and Options contracts as well as comments from Bullard who said that tapering could start as early as October. The market initially traded up to my 1719 sell level and after Bullard’s comments were released the market fell hard for the rest of the day. I covered my 1719 short position at 1710 and after the S&P traded down to my 1708 buy level I was quickly stopped out of this position at 1704 and I am now flat. The S&P has good support from 1692/1699 and as long as we can hold over 1690 this market is ok but a break and close below 1690 will be bearish. Today I will be a small buyer from 1694/1699 with a 1689 stop. Given how high the S&P is trading I am only operating in smaller size trades with a larger stop, as volatility is increasing. I will also be a small seller from 1710/1714 with a 1717 stop.
Eur/USD
The Euro worked well on Friday as the market traded up to my 1.3550 sell level before having a small sell off and I was able to cover this position at 1.3515 and I am now flat. The Euro is still very overbought and today I will be a small seller on any rally to 1.3570/1.3600 with a 1.3620 stop. I will leave my buy area the same at 1.3460/1.3480 with a 1.3440 stop.
December DAX
No change from Friday as the market has had a very muted reaction to Merkel’s victory. I am a small seller from 8730/8750 with a 8775 stop whilst I will still be a buyer on any dip to 8590/8620 with a 8570 stop.
December FTSE
I was stopped out of my 6590 long position at 6555 after Bullard”s comments on Friday. I still like the FTSE especially in relation to the Dax I have sold the FTSE/DAX spread this morning at 2120 and I will leave a stop on this position at 2150 which is just above recent highs. I will also be a buyer of the FTSE on any dip to 6510/6530 with a 6485 stop. I do not want to be short the market at this time.
December 10 Year Treasury Bond
Today I am still a buyer on any dip to 124.40/127.70 with a 123.95 stop.
December BUND
The Bund traded down to my 138.50 buy level before quickly stopping me of this position at 138.20 as I had my stop too tight. I still like the Bund as long as we can hold the 1.3800/138.20 support zone and today I will be a small buyer from 138.10/138.30 with a 137.90 stop. I do not want to be short the Bund at this time.
Gold Rolling Contract
Friday was another great example how important it is to have stops in the market as I was quickly stopped out of my 1356 long position at 1345 as Gold then traded down to a 1313 low overnight. As I have been mentioning over the last two weeks the 1350 is the key level for Gold going forward and today I will be a small seller from 1338/1348 with a 1352 stop. I will also be a small buyer on any dip to 1292/1300 with a 1287 low which is just below the lows made last Wednesday.
Silver Rolling Contract
Again, just like Gold, the importance of having a stop in the market especially when we approach a key technical level was emphasized again on Friday. Silver traded down to my 22.65 buy level after I posted and I was very quickly stopped out of this position at 22.35 and I am now flat. Silver traded down to a low of 21.28 overnight. Today I will be a small buyer from 21.40/21.60 with a 21.10 stop which is just below the low made last Wednesday before we had the huge rally in the market.
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