New Fed Chair, Janet Yellen’s Testimony to the House provided few surprises. Yellen emphasised continuity in the Fed’s policy and praised the work of her predecessor Ben Bernanke. She said that she expected QE tapering to continue ‘in further measured steps at future meetings’, however emphasising that it was not a pre-set course and very contingent on labour markets and inflation outcomes.The Fed is also watching the turmoil in Emerging Markets closely but at this stage did not pose a substantial risk to the US economic outlook.
On the labour market, Yellen highlighted that she would be looking at more than just the Unemployment Rate to assess the state of the labour market and so emphasised that interest rates will stay near zero until well past the time the 6.5% Unemployment threshold is met.
US equity markets reacted very favourably to her testimony with the Dow and the S&P, closing up 1.4% and 1.2% respectively, to complete a remarkable turnaround from where we opened last Tuesday and with the Dow now up nearly 700 points form last week’s low. Stocks also got a boost from the news that US House Speaker Boehner has advised fellow Republicans to vote for an increase in the Debt Ceiling Limit without adding any amendments or conditions – a big win for President Obama!
Markets are also opening higher in Europe this morning on the back of the Chinese Trade data released early this morning which came in much better than expected.
This morning on the economic front we have the UK Inflation Report. Bank of England Governor Carney will give a press conference and this will give him an opportunity to make any changes to forward guidance now that it looks like the UK’s Unemployment Rate will fall to the MPC’s 7% threshold, much earlier than expected. We also have Euro-Zone Industrial Production this morning whilst we have no new data releases form the US today.
March S&P 500
The S&P has now closed up 4 days in a row for the first time this year as markets shrug aside the nasty sell-off we had in the preceding two weeks as the market embraces ‘all things Yellen’. It clear that she is going to follow what Bernanke did and emphasised in her testimony yesterday the she will stop tapering if the economy slows down. The Fed are in the process of creating the greatest bubble ever in my opinion and this will not end well. After her pre-released statement was broadcast before her testimony started the S&P sold off but unfortunately missed my 1790 buy level before eventually trading up to my 1816 sell level near the close. The market is now trading in the 1816/1823 Gap left open from two weeks ago. I am only short in small size at 1816 and I will leave my stop the same at 1824. I will also be a more aggressive buyer on any dip to 1793/1798 with a 1789 stop. If I am stopped out of my short position I will be a more aggressive seller on any rally to 1839/1845 with a 1848 stop.
Euro/USD
The Euro continues to struggle near the 1.3700 resistance level. I am still flat and I will still look to buy the Euro in small size on any dip to 1.3580/1.3610 with a 1.3565 stop. I do not want to be short the Euro as I am still long the US Dollar Index.
US Dollar Index
The US Dollar Index is still trading in a very narrow range. I am still long from last week at 80.70 in small size and I will leave my stop the same at 80.30.
March DAX
The Dax is proving very frustrating to me over the last few days as the market continues to rally without me able to get a long position on board and I am still flat. The Dax has now rallied over 450 points from last week’s low and is approaching strong resistance in the 9525/9560 area. Today I will be a small seller in this region with a 9585 stop. I will also move my buy level higher to 9375/9400 with a 9355 stop.
March FTSE
The FTSE above continues to trade higher. Yesterday it traded up to my 6650 sell level and I am now short in small with a 6675 stop. If I am stopped out I will be a more aggressive seller in front of 6700 with a 6725 stop. I do not want to be long the market at this time.
Dow Rolling Contract
Amazingly the Dow traded up to my 16010 sell level last night. As I am already short the S&P and the FTSE I decided to cover my short position late last night at 15950 and I am now flat. I still believe the Dow will have trouble breaking the key 16200 level going forward and today I will again be a small seller from 16060/16200 with a 16250 stop.
March BUND
No change as I am still long from 143.50. I will leave my stop the same at 142.20 and I will give this market one more day to rally or else I will cover and stand aside.
Gold Rolling Contract
Gold just missed my 1275 buy level after I posted yesterday with a 1276 low before trading higher and I am still flat. Even though Gold is overbought here I do not want to sell the market and I will leave my buy level the same at 1269/1275 with a 1263 stop.
Silver Rolling Contract
No change as I am still long at 20.10 with the same 19.70 stop. If Silver can break and close over 20.65 it will be very bullish and if this happens I will look for Silver to trade as high as 22.50/23.00.
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