Markets are preparing for a change in Fed language this week and, despite the time it has had to do so, there are hints of a potential over-reaction. Equities were lower on Friday, Bond Yields were higher, Commodities also lower and the US Dollar ended the day flat. Measures of volatility are up across the board but FX markets are still a standout. The moves in the US have returned to ‘good data is bad’ mode as US Retails Sales were generally positive however the control measure did not meet the headline. Past revisions were solid whilst the headline outcome was as expected with upward revisions to the prior month. US Consumer Confidence also came in better than expected at 84.3 versus 82.5 last month.
The Bundesbank’s, Weldman has warned that the aggressive policy accommodation by the ECB raises risks from markets mis-pricing risks and the lowering of importance in fiscal measures and reforms. He also notes that the Bundesbank is not in favour of a public guarantee of ABS assets. Former ECB member Paramo suggests that this week’s TLTRO take-up could be close to €1 billion and there is likely to be great demand from Spain.
Meanwhile the US has imposed increased sanctions on Russia, despite the technical ceasefire, with energy companies targeted. This news weighed-on energy prices on Friday and is continuing this morning. The UK Polls for this week’s Referendum are very close with 2 out of 3 Polls on Saturday showing the ‘No’ Vote ahead.
This morning on the economic front we have Euro-Zone Trade Balance at 10.00 am. This is followed by US Empire Manufacturing at 1.30 pm. Finally we have US Industrial Production at 2.15 pm.
September S&P 500
This will be the last week for trading the September Contract as I will roll to the December Contract on Wednesday. Markets are getting more nervous ahead of this week’s FOMC rate decision on Wednesday and are opening lower this morning as the end of QE comes to pass. After I posted on Friday the S&P was hit hard on the UoM Consumer Confidence Numbers and after I went long in small size at 1986 I was quickly stopped out of this position at 1981. I am still short my small macro position from early last week at 2001.
As I have mentioned over the last few weeks I am expecting the market to run into trouble from here until mid/end October and then I expect the S&P to have a nice rally into year-end before running into serious trouble in 2015. It is difficult to call the markets ahead of Wednesday but as I mentioned on Friday with the September Contracts expiring on Friday and the Fed Meeting on Wednesday it makes it difficult to be short this week but against that, the S&P had a very weak close on Friday as the market finally took out the key 1985/1990 support level and this latter zone should now act as strong resistance. Today I will be a small buyer on any further dip to 1970/1974 with a 1967 stop. I will also look to be a seller on any rally to 1986/1990 with a 1993 stop.
Euro/USD
No change as I am still looking to buy on a dip in the market, especially given the extreme sentiment measures against the Euro at this time. Today I will raise my buy level to 1.2890/1.2920 with a wider 1.2845 stop. Given how oversold the Euro is trading I do not want to be short the market at this time.
US Dollar Index
The Dollar just missed my 84.65 sell level on Friday and I am still flat. Today I will lower my sell level to 84.45/84.75 with a 84.90 stop. Given how overbought the Dollar is currently trading I do not want to be long at this time.
September DAX
Finally after I posted on Friday the Dax traded down to my 9610 buy level. I am still long and I will leave my stop the same at 9575 as I do not want to risk to much on this trade. If I am stopped out of this position I will be a more aggressive buyer on any further dip to 9470/9510 with a 9445 stop. Again with the ECB starting their QE this week I do not want to be short the Dax at this time.
September FTSE
The FTSE ‘gapped lower’ this morning with the market finally hitting my 6780 buy level. I am still long and I will leave my stop the same at 6755 which is just below last week’s low as I still look for the market to rally after this week’s referendum.
Dow Rolling Contract
The Dow, having closed on Friday at 16987 which is right in the middle of the key 16980/17000 support zone, is trading below this level this morning as the market awaits the Fed Meeting on Wednesday. I am still flat and today I will lower my sell level to 17000/17040 with a 17070 stop as I look for the market to trade a lot lower over the next month before finding a base and having a nice rally into year-end.
December BUND
After I posted on Friday the Bund traded down to my 147.80 buy level. I am still long and I will leave my stop the same at 147.35 as I want to give this trade some room especially given the sell-off that we have had over the last five trading sessions.
Gold Rolling Contract
After I posted on Friday Gold eventually traded down to my 1229 buy level. Gold is very oversold at these levels and is trying to bounce this morning. The next key support comes in at 1220 and for this reason I will leave my stop on this position at 1218.
Silver Rolling Contract
No change as I am still long from last Thursday at 18.60 with the same 18.25 stop.
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