We have been waiting for consistently good US data and now we are getting it. The US Dollar was modestly enthusiastic about it, Bond yields less so but the fact is that the US labour market is improving. What more do the markets and the Fed need to see? US Equities rallied after the strong US Payrolls Report as did European Equities, possibly believing that a good economic recovery outweighs the inevitable Fed Rate rise. This is how things should be on a up-swing in economic growth.
US Non-Farm Payrolls were a striking +288k versus +200k expected, with +29k net revisions to prior months. The Unemployment Rate dropped to 6.1% from 6.3% with an unchanged participation rate due to a very strong household survey. Earnings steadily increased, as expected, as did aggregate hours worked. Overall the labour market is meeting the Fed’s targets early and continues to show a sustained and now robust improvement. Eventually this cannot be ignored.
The ECB left rates unchanged, as expected, but provided more details of their loan scheme-the TLTRO. This is to start on September 18 and will now be up to €1 trillion from the prior expectation of €400 billion. Banks may also pool requests which provides some anonymity. Dragi has tried to talk down the Euro but to not much avail. The ECB has also moved to a six week cycle and will begin releasing meeting minutes from next year, which should help with communication.
This morning on the economic front we already had German Factory Orders which were released at 7.00 am and again disappointed. The US Markets are closed today for Independence Day and consequently we have no other economic data due on either side of the Atlantic.
September S&P 500
The S&P closed up another 0.55% yesterday after the release of the stronger than expected Non Farm Payroll Report. It is now clear that following this strong recent economic data that the Fed cannot continue to ignore this information and that rates are going to have to rise sooner than expected. It will be very interesting to see how the Stock market will react to this inevitable event. The S&P is again very overbought on a Daily, Weekly and now Monthly basis and is trading at the top of the Bollinger Band and Williams Index. We have had the nice rally this week which was expected in this seasonally strong time of the year.
Finally just before the close last night the S&P traded up to my 1978 sell level. I am still short and I will leave a 1985 stop on this position. Remember the US Cash Equity markets are closed today and the Futures market will close early this afternoon.
Euro/USD
Following the release of the Non Farm Payrolls yesterday I was unfortunately stopped out of my long 1.3675 position at 1.3635 and I am now flat. I have to respect the price action for the Euro which finally may be about to break to the downside but it really needs to close below 1.3480 to give me confidence that it has really turned. Today I will be a small seller on any rally to 1.3625/1.3650 with a 1.3675 stop. For the first time in many months I do not want to be long the Euro at this time.
US Dollar Index
The US Dollar has managed to break back and close over the key 80.00 resistance level which should now act as good support if the Dollar is finally going to break higher. Today I will raise my buy level to 80.00/80.20 with a tight 79.70 stop which is just below this week’s low at 79.74.
September DAX
Thankfully I was not short the Dax today which finally broke and closed over the key 9950 resistance level. The 9950/9980 should now act as good support and today I will be a buyer from 9960/9990 with a 9940 stop. I do not want to be short the Dax at this time as I look for the market to finally test the key 10200/10300 resistance level that I have mentioned over the last few weeks.
September FTSE
The FTSE finally broke and closed over its key 6800 resistance level that I mentioned in yesterday’s commentary. I am still long from Wednesday at 6750 and today I will raise my stop on this position to 6780 as I now look for the FTSE to finally test the 7000 round number resistance.
Dow Rolling Contract
The Dow has an abbreviated trading session today due the US Independence Day Holiday. I am still a seller from 17050/17080 with a 17110 stop. If I am taken short and subsequently stopped out I will be a more aggressive seller in front of 17180 as the Dow, just like the S&P, is extremely overbought and trading at the top of its Bollinger Band and Williams Index.
September BUND
The Bund had a wild trading session yesterday with the market having been down hard after the Non Farms were released only to rally into the close – it has continued this morning. Today I am still a small seller from 146.80/147.10 with a 147.30 stop which is just above recent highs.
Gold Rolling Contract
I am glad that I lowered my level for buying Gold yesterday which thankfully dropped down to my 1312 buy level with a 1309.50 low. This morning I have covered half my position at 1322 and I will raise my stop to 1315 on the other half as I look for Gold to trade higher and test its next key resistance at 1350/1370 over the next while.
Silver Rolling Contract
Silver has been acting stronger than Gold over the last two weeks and this theme continued yesterday. I am still long at 20.80 and today I will raise my stop on this position to 21.00. Silver needs to break and close over 21.50 to turn even more bullish. My near term target for Silver is still 25.00.
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