The ECB took centre stage in yesterday’s markets. It kept policy unchanged but President Dragi gave a strong verbal commitment to action next month in conjunction with the next set of economic forecasts. This ensured that the Euro dropped sharply and peripheral Bond Yields (Italy and Spain) fell to new post-Euro era lows.
Mr Dragi’s chosen words were that ‘the Governing Council will act next time’ and there was a consensus within the ECB Council over ‘dissatisfaction about the projected path of inflation’. Dragi went on to make it clear that the strength of the Euro was a key driver of the sub-optimal inflation rate and that these exchange rate concerns needed to be addressed but without specifying how.
Dragi’s comments pulled the Euro/USD rate down from a high of 1.3993 after the ‘no change’ policy announcement to 1.3825 this morning. Elsewhere we have seen a reversal in early day US Bond market strength where prices drew support from the Euro-Zone Bond and Ukraine headlines. Fed Chair Janet Yellen’s repeat testimony to the Senate Budget Committee failed to offer anything new compared to Wednesday.
This morning on the economic front we have UK Industrial/Manufacturing Production and the latest Trade Balance at 9.30 am ahead of the German Current Account Balance. We have no economic data of note from the US but later this afternoon Fed Member Kocherlakota will speak on the economy.
June S&P 500
The S&P had another wild trading session yesterday having been down early in the morning before having a 17 handle rally in early US trading before giving up most of these gains to close flat on the day. The S&P plan worked very well as shortly after I posted the market started to drop and traded down to my 1873 buy level with a 1868 low before having a huge rally back to 1885 after the US opened, which enabled me to cover my long position at 1880 and I am now flat. It is now clear that the 1860/1870 area is good support and if this support is broken the next support comes in at 1845/1850 which is where we bottomed last month plus the 1846 level is previous high on December 31 last which re-enforces this support zone.
Today I will again be a small buyer on any dip to 1866/1871 with a 1858 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer from 1848/1853 with a 1843 stop. My only interest in selling this market is on a rally to 1893/1898 with a 1902 stop as I still believe that we break this key 1900 resistance level.
Euro/USD
The Euro plan worked well yesterday as the market had a nice rally ahead of the ECB announcement which enable me to cover my long 1.3910 position at 1.3960. After Dragi started his press conference the Euro dropped hard on his promise to cut rates next month and the market traded right through my buy level and I am still flat.The Euro has made a low so far at 1.3820 but before I start to turn bearish of the Euro I would like to see a close below 1.3750. This morning I am a small buyer from 1.3780/1.3825 with a 1.3740 stop. I have to use a wider stop given the expected volatility surrounding this very important support zone. I still do not want to be short the Euro at this time.
US Dollar Index
No change as the Dollar Index has finally found good support at the 79.00/79.30 very important zone. I am still long at 79.20 and I will leave my stop the same at 78.80 which is just below yesterday’s low.
June DAX
The Dax plan worked well as shortly after the ECB announcement the DAX traded down to my 9530 buy level before having a nice rally which enabled me to cover this position at 9590 and I am now flat. It is now clear that if tensions eased in Ukraine the Dax would be trading a lot higher. I still believe the Dax will eventually take out this key 9630/9660 resistance level. Today I am going to raise my buy level to 9520/9560 with a 9480 stop which is just below yesterday’s low. I still do not want to be short the Dax at this time.
June FTSE
The FTSE continues to struggle at the key 6800 resistance level. After I posted yesterday it traded up to my 6810 sell level and after a small sell-off I was able to cover this position at 6788 and I am now flat. Today I will again be a small seller on any rally to 6815/6835 with a 6850 stop. I still do not want to be long the FTSE at this time unless we break and close over the key 6825/6850 resistance area.
Dow Rolling Contract
For the second consecutive day the Dow just missed my buy level before again having a 200 point rally and I am still flat. It made a high just above the key 16600/16640 resistance level at 16670 before having a nasty sell-off into the close. Today I will raise my buy level slightly to 16460/16510 with a 16430 stop. I still do not want to be short the Dow at this time.
June BUND
I was very unlucky with my Bund plan yesterday as it just missed my 144.20 buy level before having a nice rally and I am still flat. Today I will raise my buy level to 144.40/144.60 with a 144.25 stop which is just below yesterday’s low. I still do not want to be short the Bund at this time.
Gold Rolling Contract
No change as I am still long at 1295 with the same 1283 stop which came close to been executed yesterday. Again if Gold rallies over 1300 I will look to cover my position.
Silver Rolling Contract
No change as I am still long at 19.50 with the same 19.10 stop. Again if I am stopped out I will be a more aggressive buyer in front of 18.50 with a 17.90 stop.
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