Euro-Zone Bond Yields continue to trade lower yesterday with German 10 Year falling a further 2.5bps to 0.21%. Italy Spain and Portugal all fell 9bps each and their 10 Year Bond Yields are now at an incredible 1.128%, 1.15%and 1.617% respectively. The move lower in these Bond Yields resulted in the Euro getting slammed with the Euro trading below 1.05 overnight. The war of words between Greece and Germany over debts and Greek demands for war reparations is still getting a lot of wire coverage. In a day of generally higher European Equities, the Greek stock market fell 2.5%.
With the move below 1.05 overnight, the Euro is now down almost 250 points from where I marked prices 24 hours ago. However the Euro has since rebounded and is back trading at 1.0640 this morning. Not that the ECB will be particularly unhappy about the Euro’s decent, but it does present a dilemma for the Fed with a soaring US Dollar as they review their inflation outlook into next week’s FOMC. We also note that WTI Oil Futures are within $5 of their late January low. Adding some hawkish fuel to the debate, St Louis Fed President Bullard noted in a Financial Times interview that the Fed is already a bit too late in raising rates.
And it was not just a story of Euro weakness, with GBP,CHF,JPY and AUD also softening to various degrees. The GBP/USD broke through year-to-date lows to trade at its lowest level since July 2013 at 1.4900. Declines in the CHF were also notable. At 1.09 the USD/CHF is almost back to where it traded in early January, before the Swiss National Bank removed the CHF/EUR cap.
Commodity prices all got hit yesterday on the back of the stronger Dollar but as we are finally seeing some profit taking in the Greenback, Commodity prices are also rebounding this morning.
After a week so far of very light economic data, we finally have some releases to look forward to later today. German CPI was already released at 7.00 am and came in as expected at +0.9%. We have UK Trade Balance at 9.30 am and this is followed at 10.00 am by Euro-Zone Industrial Production. Finally at 12.30 pm we have US Retails Sales and the Weekly Jobless Claims.
March S&P 500
After the fireworks in the S&P since the Non-Farm Payrolls were released last Friday the S&P traded in a very narrow range yesterday. However overnight the market traded lower to my 2038 buy level and after a nice rally this morning I have covered this position at 2046 and I am now flat. Traditionally the Thursday/Friday ahead of the Quarterly Futures Expiration tends to be a low ahead of this event as the March Contract expires next Friday. To add fuel to the fire we also have an FOMC Meeting next Wednesday. Bottom line is I do not want to be short going into these two events next week especially since we have the large ‘Open Gap’ from Monday/Tuesday at 2062/2077 which I would expect will get at least partially filled before the market trades lower. Today I will move my buy level higher to 2039/2044 with a 2035 stop. If I am taken long and subsequently stopped out of this position I will use my ‘5 Handle Rule’ to go long again with a stop below whatever low is printed. My only interest in selling the S&P is still on a rally to 2067/2074 with a wider 2081 stop.
EUR/USD
The Euro plan worked out well yesterday as by the time that I posted the Euro was in free-fall and trading at the bottom of my buy range at 1.0580. Subsequently the Euro made a low of 1.0560 before having a nice rally to 1.0625 which enabled me to cover this position at 1.0620 and I am now flat. This morning the Euro has already had a decent rally off the 1.0495 low print overnight and interestingly for the first time in over a week the Williams Index has given a small buy signal. Today I will again be a small buyer on any dip lower to 1.0540/1.0580 with a 1.0490 stop which is just below the overnight low.
US Dollar Index
Unfortunately after the Dollar traded higher to my 99.90 sell level after I posted yesterday morning, I was stopped out of this trade overnight at 100.30 and I am now flat which is frustrating as the Dollar is back trading at my entry level this morning. Today I will again look to go short from 100.10/100.40 with a 100.75 stop as I really believe this Dollar is grossly overvalued at these levels and it will be very interesting to see the Fed’s reaction to the stronger Dollar at next week’s FOMC Meeting.
March DAX
The DAX plan did not work out well yesterday as the market continues to defy gravity as one resistance after another is taken out. After I posted yesterday morning I went short the DAX at 11690 only to be very quickly stopped out of this trade at 11750. Yesterday was another great example of how important it is to have stops in the market. As I mentioned in last Tuesday’s commentary the next major resistance for the DAX is at 11820 and I have gone short here in small size with an 11870 stop which is just above yesterday’s high. I will also move my buy level higher to 11540/11600 with an 11480 stop.
March FTSE
This morning the FTSE is trading at my 6755 sell level. I have gone short here in small size as the FTSE has very strong resistance between 6770/6800 and I will leave a 6810 stop on this position.
Dow Rolling Contract
My short 17980 position has worked out really well over the last few days. As I mentioned in my S&P commentary above I do not want to be short the market ahead of the March Expiration and FOMC Meeting next week and for these reasons I have covered my short position at 17690 this morning and I am now flat. Another reason why I have covered this position is the fact that despite the Dow and S&P both closing lower yesterday the McClellan Oscillator improved to print -148 versus -191 the previous day. Today I will look to buy the Dow on any move lower to 17610/17660 with a 17570 stop. I do not want to be short the Dow at this time.
June BUND
I am still flat the Bund and today I will lower my sell level slightly to 158.65/158.95 with a 159.25 stop.
Gold Rolling Contract
The Gold plan worked out very well yesterday as late in the afternoon Gold traded lower to my 1151 buy level and after a nice move overnight I have covered this position at 1162 and I am now flat. Today I will again look to buy Gold on any dip lower to 1146/1153 with the same 1139 stop.
Silver Rolling Contract
No change as I am still long at 15.75 with the same 14.90 stop.
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