The history books that are today’s newspapers are already writing that the sharp move in the US Dollar over the past 24 hours was primarily the result of US inflation data. CPI, while showing a negative headline print for the year-on-year change, is encouraging because core prices rose by 0.2% versus 0.1% expected. This suggests that weaker energy prices are not bleeding aggressively into core inflation, which will bolster the Fed’s faith in inflation moving up towards the 2% target, as what Janet Yellen calls the ‘transitory’ impact of lower Oil prices washes out. So, the Fed can commence tightening in June with impunity, so the story goes.
If only FX was so simple. In truth, the EUR/USD led moves with the Euro nearly 180 points lower than where I marked prices yesterday morning, was underway before the first of yesterday’s data release hit the screens. Order flow – in structurally less liquid markets post the January SNB shock – looked to have got the ball rolling. That said I would not deny that the data yesterday which included a small upside surprise in Durable Goods Orders was helpful to the cause of a firmer US Dollar and partial reversal of Tuesday’s sharp fall in US Bond Yields which saw the 10-Year back above 2% from 1.94%.
One irony is that the Euro led moves came on a day when German Unemployment fell by a much larger than expected 20,000. Meanwhile the various Euro-Zone Business and Economic Sentiment Readings for February were mixed, some dipping and some exceeding their January prints and overall nothing to write home about. ECB President Dragi meanwhile was upbeat on growth prospects in his address to the EU Parliament yesterday, before attracting the ire of politicians for leaving early to catch a plane. Where is his commitment to accountability, some seemed to be suggesting. Note also that wire reports circulating that Greece is likely to need upwards of a further EUR30bn in new aid once the current EUR172bn programme expires. I bet Germany cannot wait to sign that cheque.
Oil prices fell again with WTI closing down $2.30 to $48.80, with rising inventories blamed for the sell-off.
This morning on the economic front we have German CPI at 1.00 pm. This is followed at 1.30pm by US GDP which will certainly grab the market’s attention. At 2.45 pm we have the Chicago Purchasing Manager Survey. Finally at 3.00 pm Pending Home Sales and the University of Michigan Survey are both due to be released.
March S&P 500
I was very unlucky with my S&P call yesterday as I had an order to go short at 2116 but the high was only 2115.25 before the market had a nice 15 handle sell-off before mounting a small rally into the close. For the third consecutive day I am still flat the S&P. The strong Dollar is definitely having an impact on the US markets as the sell-off came despite better than expected economic data and another new closing high for the DAX. Today I will lower my sell level slightly to 2114/2120 with a 2125 stop. My buy level will remain unchanged at 2093/2098 with a 2087 stop as I do not want to chase this market higher especially as earnings do not justify such a lofty stock market but with Bond Yields so low pension funds have no choice but to put their funds into equities. I have no doubt that this will not end pretty but as long as we stay over the key 2067/2072 support zone it is difficult to be short the S&P.
EUR/USD
The strategy of buying the Euro on dips with a tight stop has worked really well for the last month until yesterday when after buying the Euro at 1.1290 I was very quickly stopped out of this position at 1.1250 and I am now flat. Yesterday was another great example of how important it is to have stops in the market. As I mentioned earlier in the week a break and close below 1.1260 would see the Euro accelerate to the downside and the fact that this level acted as such a strong support over the past month should now act as strong resistance going forward. For this reason I will be a small seller from 1.1240/1.1270 with a wider 1.1310 stop. My only interest in buying the Euro is on a further dip lower to 1.1120/1.1150 with a 1.1080 stop which is just below the spike lower in January.
US Dollar Index
After I posted yesterday the Dollar spiked higher to my 94.85 sell level. I am still short and I will leave my stop the same at 95.30 as I do not want to risk too many points on this trade. If I am stopped out of this position I will be a more aggressive seller from 95.80/96.10 with a 96.40 stop.
March DAX
The move higher in the DAX continues with little or no sell-off to the downside, with the market extremely overbought on both a Daily and Weekly basis. The DAX has finally entered the key 11300/11400 strong resistance zone which hopefully will lead to a sell extreme. Yesterday I went short at 11320 but only in small size. Given how strong this resistance area is I am going to widen my stop to 11410. If the DAX breaks 11180 I will lower my stop to 11270.
March FTSE
Long after I posted yesterday morning the FTSE finally hit my 6925 sell level. I am still short and I will lower my stop slightly on this position to 6960 as I do not want to risk too many points especially with today been the last trading day of the month, when traditionally Pension Funds can put monies to work in the stock market.
Dow Rolling Contract
No change as I am still a small seller on any rally higher to 18270/18320 with an 18360 stop. The strong Dollar is definitely having an effect on the earnings of some of the major Dow companies and it will be interesting to see how the Dow performs at these lofty levels especially the fact that we still have had seven Hindenburg Omen’s so far in 2015.
March BUND
After I posted yesterday morning the Bund just missed my 160.10 sell level with a 160.00 high before trading lower and I am still flat the market. Today I will lower my sell level slightly to 159.75/160.05 with a 160.25 stop.
Gold Rolling Contract
No change as I am still a small buyer from 1196/1205 with a 1189 stop. Gold really needs to break and close over 1230 for the market to really catch a bid on what has been a very weak month for the precious metal.
Silver Rolling Contract
I have just been stopped out of the rest of my long 16.20 position at 16.40 this morning and I am now flat. Today I will again look to but Silver on any further move lower to 15.90/16.20 with a 15.55 stop.
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