The Crimean Peninsula tensions developed another leg yesterday with the local pro-Russian legislature calling for self-determination. A vote on whether to join the Russian Federation to be held next week, on March 16. The Ukrainian leadership called this illegal and Europe weighed in with more political pressure on Russia, pulling back from scheduled talks over trade and other matters. President Obama also weighed in with an order restricting some visas of people ‘undermining democracy’ in the Ukraine.
Markets however are moving on at least for now even though the situation has not been resolved. Yesterday the FX markets were more interested in what the ECB did with its growth and inflation forecasts. They reviewed and upgraded their growth and inflation targets with it’s 2016 inflation forecast target being doubled from 0.8% to 1.7%. Dragi said in his press conference that the ECB took comfort from the recent better economic news and the combination of these two news events led to the Euro rallying from 1.3740 to 1.3870. In contrast, the Bank of England decision of ‘no change’ came with little or no reaction from Sterling.The S&P closed up another 0.3% for yet another record close as the US equity markets were again helped by the weaker US Dollar.
This morning on the economic front we have German Industrial Production. This is followed in the US at 1.30 pm by Non Farm Payrolls. It should be noted that at 6.6% the US Unemployment rate is within spitting distance of the 6.5% threshold below which the Fed has been saying they would begin to review whether the Fed Funds Rate might need to be increased. This could be a very important and historic Payroll Day.
March S&P 500
The S&P made yet another record closing high yesterday on yet another very quiet trading session as the market goes on hold ahead of today’s Non Farm Payroll data. I was looking at some monthly charts of the S&P last night and they are pointing to some worrying signs on the horizon. Volume has been decreasing over the last few years whilst the RSI is also showing clear signs of negative divergence which means that while the S&P continues to make these new highs the RSI is making lower highs which potentially could be very bearish. Now this is something that is not going to play out in the next few weeks but it is definitely worth keeping an eye on.
I am still flat the S&P and I will stay flat until we get today’s numbers out of the way. Remember we still have the huge Gap from 1844/1862 from last Tuesday and if this does not get filled today then we will have a confirmed breakaway gap which is potentially very bullish over the short term. Today I will leave my buy level the same at 1863/1868 with a 1859 stop while I will still be a small seller on any rally to 1885/1890 with a 1893 stop. If I am taken short and subsequently stopped out I will be a more aggressive seller from 1898/1903 with a 1906 stop.
Euro/USD
As expected, the Euro did indeed break and close over the key 1.3850 resistance level that has been in place for the last year. We really have no resistance now until 1.4000. However the Euro is very overbought here, and at the top of the Bollinger Band, making it very difficult to buy it this morning especially with the Non Farm Payrolls due later today. Today I will be a small buyer on any dip to 1.3810/1.3840 with a 1.3780 stop. Given the breakout and despite the Euro been extremely overvalued I do not want to be short the market at this time.
US Dollar Index
Dragi’s press conference certainly drove the Dollar lower as he doubled the ECB’s inflation target for 2016 to 1.7% and in the process the Dollar Index traded down to my 79.80 buy level. Even though the Euro has broken its key resistance level at 1.3850 the Dollar Index is still trading much higher than its corresponding low at 78.90 made last October. In other words as long as the Dollar Index stays over 78.90 the Dollar is fine but a break and close below here will be very bearish for the Dollar. Given the expected volatility and the fact that the Dollar is trading at the bottom of the bollinger band I am going to lower my stop to 79.30 on my 79.80 long position as I want to try and give this trade some room.
March DAX
The Dax worked well yesterday as as the market traded down to my 9520 buy level before having a nice rally which enable me to cover this position at 9560 and I am now flat. The Dax is trading heavily this morning due to a combination of the extremely strong Euro and concerns over the Ukraine. The Dax has also failed to close back over the key 9550 resistance level. Today I will be a seller on any rally to 9520/9550 with a 9575 stop. Given how heavy the Dax is trading I do not want to be long the market at this time.
March FTSE
The FTSE is also trading heavily this morning in comparison to the US stock markets. After I posted yesterday the market made a low of 6751 just missing my 6750 buy level before having a nice rally and I am still flat. Today my only interest in buying the FTSE is on a dip to 6700/6720 with a 6685 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
The Dow has again closed higher but is still trading below the key 16589 high made on December 31. It really needs to break this key resistance point for me to turn bullish and as long as we stay below here we still have the potential of the negative divergence between the Dow and the S&P. The fact that we have Non Farm Payrolls at 1.30 pm and that I am expecting a lot of volatility surrounding their release my only interest in buying the Dow is till from 16300/16340 with a 16260 stop. I will also be a small seller on any further rally to 16530/16580 with a 16620 stop.
June BUND
After Dragi spoke yesterday the Bund traded down to my 142.20 buy level. I am still long and I will leave my stop at 141.90.
Gold Rolling Contract
Gold is higher as it follows the US Dollar lower and traded up to my 1350 sell level. Given that today is Non Farm Payroll day I do not want to be short Gold and I have covered this position this morning at 1347 and I am now flat. Today my only interest in selling Gold is on a rally to 1359/1365 with a 1368 stop. I will still be a buyer on any dip to 1310/1318 with a 1305 stop.
Silver Rolling Contract
Silver tried to rally yesterday but as you can see from the price action the market is struggling here. I have decided to go flat ahead of 1.30 pm and I have covered my long 21.20 position at 21.32 this morning . Today I will be a small buyer on any further dip to 20.65/20.95 with a 20.40 stop.
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