The ECB made no change to policy settings when it met yesterday but stands ready to use quantitative easing (QE) to fight deflation. Expressing genuine surprise at the March Inflation estimate of just 0.5% President Dragi admitted that ‘there was a discussion’ about QE after apparently there was none last month and it seems that there are ‘different preferences about which QE would be more effective’ amongst ECB Members.
The ECB has consistently highlighted its belief that it does not see deflationary threats and Dragi still expects that inflation will pick up in April but his comments made it clear that the ECB is now ready to step into uncharted waters if inflation continues to disappoint.
The Euro initially rose to over 1.3810 on the no change rate announcement but quickly fell below 1.37 on talk of QE. The move lower was also helped by Dragi’s explicit reference to the Euro in his opening statement where he said that ‘exchange rate developments will be monitored closely’. A strong US Payrolls number at 1.30 pm would see a further downward correction to the Euro. With all the focus on the ECB, falls in the Services PMI attracted little attention where the Euro-Zone Services PMI for March was revised lower to 52.2 from 52.4. Ahead of Non Farm Payrolls today US economic data came in below expectations. The ISM Non Manufacturing Index did rise to 53.1 but it was below market expectations of 53.5 whilst the Weekly Jobless Claims rose 16k to 326k last week.
This morning on the economic front we have German Factory Orders, followed at 1.30 pm by the key data of the week, namely the US Non Farm Payrolls which are expected to rise by 200k in March building on the 175K rise in February. The Unemployment Rate is expected to ease to 6.6% from 6.7% last month.
June S&P 500
All eyes will be on the US at 1.30 pm for the release of the latest Non Farm Payrolls and Unemployment Rate. I was very unlucky with my 1873 buy level yesterday as the market made a low of 1875.25 before trading back to 1887 and I am still flat. As most members know I am always flat going into a Non Farm Payrolls Number and today is no exception. Following the release of these key numbers if the S&P rallies to 1894/1900 I will be a small seller with a 1904 stop. I will still be a buyer on any dip to 1872/1876 with a 1867 stop if we get a weak number. Again if I am taken long and subsequently stopped out I will still be a more aggressive buyer on any dip to 1853/1858 with a 1848 stop which is just below last Monday’s Open Gap at 1850.50.
Euro/USD
The Euro worked well yesterday as after the ECB announced no change to its policy the market initially rose to 1.3810 and I was able to cover my long 1.3760 position at 1.3800 and I am now flat. It closed below the key 1.3720 support level last night and the market should now have trouble breaking back above 1.3750. Today I will be a small seller on any rally to 1.3715/1.3745 with a tight 1.3765 stop. My only intererest in buying the Euro is on a dip to 1.3550/1.3580 where I will be a reasonably aggressive buyer.
US Dollar Index
Finally the US Dollar Index is moving higher, crucially closing over 80.60. I am still long from last week at 80.20 and today I will raise my stop to 80.00 as I look for this market to trade higher again. A break of 8100 will see me move my stop to 80.70 on this position.
June DAX
The Dax is struggling to break the key 9660/9700 resistance area as it continue to trade at the top of its Bollinger Band and despite the fact that the S&P has continued to make new highs over the last week. To me this is a warning sign and today I am going be a small seller on any rally to 9680/9710 with a 9730 stop. Note, the original breakdown in the Dax occurred in mid-January at the 9660 level and despite numerous attempts the market is finding it very difficult to break this level. I do not want to be long the Dax at this time.
June FTSE
The FTSE plan worked well yesterday as after I posted it traded down to my 6590 buy level and after a nice rally this morning I have covered this position at 6620 as I want to be flat ahead of the Non Farm Payrolls at 1.30 pm. Today I will again be a buyer on any dip to 6575/6595 with a 6555 stop. In contrast to the Dax above I do not want to be short the FTSE at this time.
Dow Rolling Contract
As expected the Dow is again challenging the key 15590/16610 resistance level, a closing break of which negates the current negative divergence that has been going on all year. I am going to stay flat the Dow ahead of the Non Farm Payrolls but if we are trading over 16610 after the US Cash markets open at 2.30 pm I will be a small buyer with a 16550 stop.
June BUND
The Bund had a volatile trading session, initially it opened and traded lower ahead of the ECB rate announcement but later the market rallied on Dragi’s comments on QE. The market traded up to my 142.95 sell level and I am still short and I will leave my stop the same at 143.25 on this position.
Gold Rolling Contract
After I posted yesterday morning Gold traded down to my 1283 buy level. I am still long and today I will raise my stop to 1275 on this position as it is again trying to stabilise over its 100 Day Moving Average at 1286.
Silver Rolling Contract
No change as I am still long from nearly two weeks ago at 19.90. I am very impressed at how well Silver is holding in despite the huge sell-off that we had in Gold over the same time frame. I will leave my stop the same at 19.55 on this position.
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