A glance at the 10-Year German Bund Yield this morning shows the Yield down anther 8bp to just 0.23% which tells us most of what we need to know in understanding the unrelenting slide in the EUR/USD rate at a time when comparable US Treasury Yields have been trending downwards since last Friday’s post-US Employment Report spike. The speed and extent of the decline in the EUR/USD rate, now 11.6% since the start of the year and an unbelievable 23% since last May, has prompted the Financial Times – arguably the World’s preeminent business newspaper – to lead this morning with the headliner ‘Euro falls against Dollar as parity looms’.
Usually that is a sure-fire sign that a decent correction is imminent, though quite what the catalyst might be is hard to see at the moment, barring a surprisingly dovish tone out of next week’s FOMC Meeting.
On the subject of parity, USD/CHF moved back above parity for the first time since the mid-January SNB bombshell when it dropped the commitment to the Swiss Franc ceiling. Meanwhile the NOK continues to outpace the EUR in the G10 currency race to the bottom, with Oil prices still on the skids after a downside Norwegian CPI surprise. Finally the AUD has, wholly unsurprisingly, managed to take out its post-3 Feb RBA rate cut this morning with the market now below 0.76 against the US Dollar for the first time since March 2009.
Still in large part a currency story, US equities have tumbled yesterday with the Dow closing down 332 points or 1.85%. It is difficult at present to precisely distinguish between the impact of a rising Dollar on the US Corporate Earnings outlook, and the threat of a higher discount factor as the shorter end of the US Yield curve continues to signal an increased likelihood of a mid-year Fed Rate hike. What is clear is that Dollar strength is continuing to feed the negative global commodity price trend with Oil off another $1.5 and Gold at its lowest level since Dec 1 2014.
On the economic front the only data of note due on either side of the Atlantic is UK Industrial Production which will be released at 9.30 am.
March S&P
The S&P got slammed yesterday and in the process has left a very large ‘Open Gap’ which runs from 2062/2077. Yesterday after I posted the S&P was trading at my 2063 buy level before very quickly stopping me out of this trade at 2057. After the S&P broke 2055 I went short again after a small rally developed at 2060. Subsequently the market got hit hard into the close which enabled me to cover this short position at 2048 and I am now flat. The big question over the next two days is whether we are going to fill this ‘Open Gap’ or just keep trading lower. The McClellan Oscillator closed last night with a reading of -191. As long as the S&P stays below 2070/2080 then there is every chance that we have at least a temporary top in the market which opens up the possibility of a move lower to 1860/1890. Today my only interest in selling the S&P is on a rally back to 2063/2070 with a wider 2077 stop. Given how oversold the S&P is currently trading I will also be a small buyer on any dip lower to 2033/2038 with a 2028 stop.
EUR/USD
By the time that I posted yesterday morning the Euro was trading at my 1.0750 buy level before having a nice rally which enabled me to cover this position at 1.0790 and I am now flat. The move lower in the Euro has been extraordinary with the market getting slammed again as we are now trading at an extremely oversold 1.0650. Presently every support is getting breached and at this stage it is hard to see where the catalyst is going to come from to move this Euro higher. Given how oversold the market is I will again look to buy the Euro on any further dip lower to 1.0590/1.0625 with a 1.0565 stop.
US Dollar Index
The Dollar Index plan did not work out so well as I have been stopped out of my 99.05 short position at 99.50 this morning and I am now flat. Today I am still a small seller in front of 99.85 with a 100.30 stop.
March DAX
The DAX plan worked out very well yesterday as shortly after the US Markets opened the DAX traded lower to my 11420 support level. Subsequently the DAX had a decent rally from this support area which enabled me to cover this position at 11520 and I am now flat. Incredibly the divergence between the US markets and the DAX continues to widen and obviously the Euro is a major factor in this equation with Germany now having a major competitive advantage over the US following the 23% move lower in the Euro. Today I will be a small seller from 11670/11720 with a 11750 stop. I will also move my buy level higher to 11480/11520 with a 11440 stop.
March FTSE
My fears about been long the FTSE certainly proved to be correct as shortly after I posted I was stopped out of my long 6860 position for a small loss at 6825 and I am now flat. Subsequently the FTSE got slammed with the market closing below the key 6750 pivot point. Today I will be a small seller on any rally back to 6730/6760 with a 6780 stop. I do not want to be long the FTSE at this time.
Dow Rolling Contract
Thankfully I managed to get short the Dow last Monday at 17980 as I really believe the Dow is in a lot of trouble technically especially after yesterday’s 332 point decline. I am still short and today I will lower my stop to 17750 on this position.
June BUND
The idea of selling rallies in the Bund with a tight stop has stopped working over the last two days with the Bund having a massive rally yesterday. After I posted I went short at 157.90 before very quickly getting stopped out of this position at 158.30 and I am now flat. If we keep going at this pace it will not be long before the Bund is trading in negative territory. Today I will again try the sell side on any further rally to 158.90/159.30 with a 159.60 stop.
Gold Rolling Contract
My long 1160 Gold position worked out well yesterday as shortly before lunch Gold had a nice rally which enabled me to cover this position at 1168 and I am now flat. The key level to watch for Gold is at 1130 as a break and close below here will be very bearish. Today I will again be a small buyer on any dip lower to 1147/1153 with a 1139 stop.
Silver Rolling Contract
No change as I am still long at 15.75 with the same wider 14.90 stop.
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