Fed Chair Janet Yellen’s testimony to the Joint Economic Committee yesterday was on the dovish size where she again highlighted that very accommodating policy was still required given the considerable slack in the labour market and low inflation. She is also becoming increasingly concerned that the recent softness in the housing market may prove more protracted than currently expected whilst the Ukraine situation is also a prominent risk.
Yellen refused to be drawn on the timing of the first rate rise having learned her lesson after her first post FOMC press conference in March, only repeating that QE will end in the Autumn if the labour market improves as expected and that the Fed Funds Rate will remain low for a considerable time thereafter.
US equities lost some ground after the initial headlines but more than recovered their losses as her testimony went on, with the Dow and S&P closing up 0.7% and 0.6% respectively. News that Russia had withdrawn its troops from the Ukraine border also supported markets.
This morning on the economic front we have German Industrial Production at 10.00 am ahead of the Bank of England Rate decision and Asset Purchase target at midday. Later at 12.45 pm the ECB will announce its rate decision and this is followed by ECB President Dragi’s press conference. The US will release its latest Weekly Jobless Claims at 1.30 pm.
June S&P 500
The S&P staged a late rally to close up on the day having been down a lot earlier in the trading session in what was another wild day for trading. In contrast to Tuesday when the S&P closed on its low the market yesterday closed near the highs of the day.
The S&P plan worked well as shortly after I posted it was trading at my 1869 sell level before having a nice sell-off which enabled me to cover this position at 1860 and I am now flat. I was very unfortunate that the market made a low at 1854.25 just missing my 1853 buy level before the market rallied 25 handles. I still believe that the S&P will take out at least its April 4 high at 1892.5 and trade up over at least 1900 before we finally get our top in the market. It is clear from Yellen’s testimony yesterday that the Fed will do everything in its power to keep rates low and thus the stock market as high as it can. Today I will be a buyer on any dip to 1869/1874 with a 1865 stop. My only interest in selling the market is on a rally in small size to 1890/1895 with a 1902 stop.
Euro/USD
The Euro finally traded down to my 1.3910 buy level overnight. It is firming this morning and I will look to cover this position ahead of the ECB rate decision at 12.45 pm. After the rate announcement I will look to re-buy my position on any dip to 1.3870/1.3900 with a 1.3840 stop. I still do not want to be short the Euro at this time as I am still looking for it to break the key 1.4000 resistance level.
US Dollar Index
No change as I am still long from 79.20 with the same 78.80 stop.
June DAX
Just as I posted yesterday morning the Dax took off to the upside as it outperformed the other major indices as pressures in the Ukraine started to ease. I am still convinced that it will eventually take out the key 9630/9660 resistance level on its way to testing the 10,000/10,200 resistance level. If it was not for the ECB Meeting this morning I would have bought the Dax here but given the expected volatility surrounding the announcement I will look to buy on any dip to 9500/9540 with a 9465 stop. I still do not want to be short the Dax at this time.
June FTSE
The FTSE is still trading the weakest of all the major indices despite the very good economic news coming out of the UK. I am still flat the FTSE and I will stay that way until we get the Bank of England Rate decision at 12.00. After the announcement I will be a small seller from 6810/6835 with a 6855 stop. I still do not want to be long the market at this time especially as we are testing the long term resistance from 6800/6850.
Dow Rolling Contract
I was really unlucky with my Dow plan yesterday as it just missed my 16330 buy level by a few points and it is now trading over 200 points higher and I am still flat. At least we have not been short the Dow over the last few weeks as I am still looking for this market to finally take out the key 16600/16640 resistance level. Today I will raise my buy level to 16440/16480 with a 16390 stop.
June BUND
The Bund plan worked well yesterday as shortly after I posted it traded down to my 144.40 buy level before having a nice rally which enabled me to cover this position at 144.65 and I am now flat. This morning I will look to reset my long position on any dip to 14380/144.20 with a 143.60 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
As tensions started to ease in the Ukraine, the Gold market was hit hard as it traded down to my 1295 buy level. I am still long and today I will lower my stop slightly to 1283 which is just below the main Moving Averages. If Gold trades back above 1300 I will look to cover my position.
Silver Rolling Contract
No change as I am still long Silver at 19.50 with the same 19.10 stop. Again if I am stopped out of this position I will be a more aggressive buyer on any dip to 18.50 with a 17.90 stop.
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