For much of the year to date, analysts and traders have been all too ready to dismiss weakness in incoming US economic data as cold-weather related. The weakness in US Industrial Production in March reported yesterday which came in at -0.6%, together with a sharp fall in the Empire New York State Manufacturing Survey which printed-1.19 from 6.90 previously is being blamed on the weather not being cold enough. Utilities output, that surged in February due to cold weather, slumped in March to depress overall production. The Empire Survey meanwhile suggests that the impact of past US Dollar strength on Manufacturing is continuing to be felt, as the slump in Oil drilling activity. Today’s Philly Fed Survey should be more revealing in this respect.
The good news was the NAHB Housing Market Index rose to a better than expected 56 from 52, suggesting that the warmer weather is breathing life back in to one source of drag on the US economy. We also had the Fed’s Beige Book, which reports that activity continued to expand across most regions between mid-February to end-March, even though US Dollar strength, falling Oil prices and the harsh weather were seen to have hurt manufacturing.
In truth, the impact of incoming US economic news on markets has been pretty limited, as has been a fresh decline in core Euro-Zone Bond Yields to new record lows. This followed another stout defence of the ECB’s QE Bond buying programme by Mario Dragi in his post-meeting press conference, where he said the programme could even be extended if necessary. This was while being attacked by a box of confetti amid cries of ‘end ECB dictatorship’. 10 year German Bund Yields hit a new record low of just 10.5bps yesterday, and which was one factor in keeping US Bond Yields depressed, though the fresh spreads widening we have seen patently failed to further depress the EUR/USD rate. Indeed we witnessed an across the board sell-off in the US Dollar and that theme continued all the way into the New York close although the US Dollar is opening slightly stronger this morning.
This morning we have no economic data of note due from either the Euro-Zone or the UK. At 1.30 pm we have the US Weekly Jobless Claims, Housing Starts and Building Permits. This is followed at 3.00 pm by the US Philly Fed Outlook where the consensus is for an unchanged 5 print. At the same time the G 20 Finance Ministers and Central Bankers are meeting in Washington while later this afternoon the Fed’s Lockhart, Mester and Rosengren are speaking at different conferences.
June S&P 500
Surprisingly the S&P traded in a very narrow range yesterday especially when you consider how volatile that the German DAX was following the Dragi press conference. Shortly after I posted yesterday morning the S&P traded higher to my 2100 sell level. However I have to respect the fact that the market closed over this 2100 resistance level and as technically we really need to see the market break 2090 for me to stay short I have decided to cover this 2100 short position today at 2099 and I am now flat. The 2090 should act as minor support and today I will be a small buyer from 2090/2095 with a 2086 stop. I am going to stand aside from going short today unless we spike higher to 2112/2117 where I will again be a small seller with a 2122 stop.
EUR/USD
The Euro plan worked out very well yesterday as shortly after I posted the Euro traded lower to my 1.0580 buy level before having a very nice rally which enabled me to cover this position at 1.0660 and I am now flat. When you consider how wide the differential is between US and Euro-Zone Bond Yields you would have expected the Euro to have fallen against the Dollar instead of rallying and emphasises my point about how positioning and sentiment is all one-way. However for the Euro to build upward momentum it needs to break and close above 1.0750. Longer term a break and close over 1.1050 would be very constructive. Today I will again be a small buyer on any further dip lower to 1.0580/1.0620 with a 1.0555 stop.
June US Dollar Index
The Dollar Index plan also worked well yesterday as shortly after I posted the Dollar was trading at my 99.40 sell level before having a nice sell-off which enabled me to cover this position at 98.80 and I am now flat. Today I will again be a small seller on any rally higher to 99.10/99.50 with a 99.85 stop.
June DAX
Unfortunately shortly after I posted the DAX just missed my 12360 sell level before getting slammed to the downside and I am still flat. There is no doubt the DAX is having major difficulty in breaking the now key resistance from 12350/12400 after its near 30% rise so far this year. This morning the DAX is coming under pressure and today I will be a small buyer on any further dip lower to 12100/12140 with a tight 12060 stop. I will also lower my sell level to 12270/12320 with a 12370 stop which is just above the highs made shortly after the open yesterday morning.
June FTSE
Overnight the FTSE has traded higher to my 7070 sell level. I am still short and I will lower my stop on this position to 7095 which is just above the new contract highs made earlier this morning.
Dow Rolling Contract
The Dow plan also worked well yesterday as shortly after the US markets opened the Dow traded higher to my 18130 sell level before having a nice sell-off which enabled me to cover this position at 18080 and I am now flat. Today I will again look to go short on any further spike higher to 18160/18210 with a 18240 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller in front of 18300 with an 18350 stop.
June BUND
Incredibly this morning the 10 year German Bund is testing parity. Yesterday after I posted the Bund traded higher to my 159.95 sell level before just now stopping me of this trade for a small loss at 160.20 and I am now flat. I will still continue with my strategy of selling rallies as this plan has worked very well so far in 2015. Given the strength of the German economy I just cannot see German Bond Yields staying this low for too long a period. Today I will again be a seller on any further rally to 160.25/160.55 with a wider 161.10 stop.
Gold Rolling Contract
Unfortunately Gold is breaking higher this morning without me being able to get a long position on. Remember a break and close over 1220/1230 will be very positive and opens up the possibility of a move higher to 1300/1350 over the coming weeks. Today I will raise my buy level to 1195/1203 with an 1189 stop.
Silver Rolling Contract
No change as I am still long at 16.40 with the same 15.90 stop.
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