Two words, both beginning with ‘so’ – solid and some – marked the FOMC statement out as very subtly more hawkish than its recent predecessors. It leaves the US Dollar slightly higher; US Bond Yields little changed after an initial dip down; and equities modestly higher (S&P500 +0.73%). Those going into the FOMC statement with a view that September was the most likely date for lift-off (the majority of Wall Street economists) will not have been dissuaded from their views out of the Fed. Those believing a move is not coming until December/Q4 – the majority of US money market participants – will overall not have been persuaded to change their view either.
For anybody following my New Platinum Service it made 105 points yesterday and is now ahead by 1485 points for July. Last month it generated a total of 3045 points.
So, we are left with even more than the usual elevated importance being attached to upcoming US Employment Reports, of which there are two this side of the September 16/17 FOMC, in gauging the likely date for ‘lift-off’ and whether we might yet still get two Rate Hikes this year. The FOMC statement was in most respects a carbon copy of its June predecessor. The last four paragraphs of a five paragraph statement contained only one word change. This was the addition of the word ‘some’ in from of ‘further’ in the sentence that now reads “The Committee anticipates that it will be appropriate to raise the target range for the Federal Funds Rate when it has seen some further improvement in the labour market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term”. The inclusion of ‘some’ is being interpreted as meaning that only slightly improvements are required from this point before the Fed regards the labour market conditions for lifting rates to have been met.
In the first paragraph, it was the inclusion of ‘solid’ that was most telling, as in “The labour market continued to improve, with solid job gains and declining Unemployment. Previously the Fed had noted only that ‘the pace of job gains picked up’ and that the ‘Unemployment Rate remained steady’. What marked the statement out as only subtly more hawkish was the absence of any encouragement for the view that the FOMC sees inflation pressures as picking up – the other half of the Fed’s dual mandate of achieving maximum employment with price stability. The Statement deleted reference to energy prices having stabilised – a necessary sop to the recent renewed downturn in Oil prices. It again notes that “Inflation continued to run below the Committee’s longer-run objective” and that “market-based measures of inflation compensation remain low”.
So while upcoming labour market indicators in line with recent trends can led the Fed to can led the Fed to conclude that labour market slack is no longer a constraint to tightening, they will still want to be more confident than they are currently that inflation is, or is likely to, pick up before acting. The only other piece of market relevant macro-economic news yesterday was US Pending Home Sales and which unexpectedly dropped (-1.8% against an +0.9% expected) In FX, the US dollar is firmer out for the FOMC against all G10 currencies bar the Norwegian Krone (after Oil prices closed higher, despite a comment from US House speaker Boehner that he support a lifting of the ban on US Oil exports). EUR/USD (-0.64% to back below just 1.10
This morning on the economic front we have German Unemployment at 8.55 am. This is followed at 9.00 am by the release of the ECB Economic Bulletin. Finally at 1.30 pm we have the US Weekly Jobless Claims and GDP.
September S&P 500
It was good that we stayed flat ahead of the release of the FOMC Statement as the market immediately spiked higher to 2102 on its release. I went short in small size at 2101 and I will leave my stop the same at 2106 on this position. This month has been one of the most frustrating trading months that I can remember in a long time with the whip saw action of the S&P quite incredible. We tend to get this two way price action near a top or bottom on the market and bare in mind the S&P despite all this volatility has gone no – where so far this year. There is no doubt the Housing Market has slowed a lot over the past few months while average earnings are not increasing making it very difficult for the US Economy to grow at the 3% desired level by the Fed. If I am stopped out of my short 2101 S&P position I will only look to go short again on any subsequent rally higher to 2114/2119 with a 2124 stop.
EUR/USD
Shortly after I posted early yesterday morning the Euro was trading at 1.1080 which enabled me to exit my existing 1.1035 long position as outlined earlier to my Platinum Members. Subsequently after the Fed released its FOMC Statement the Euro got it again to the downside with the market eventually hitting my 1.0970 buy level. I am still long and today I will use and rally above 1.10 to exit and stand aside. If I manage to exit this position above 1.10 I will them look to go long again on any subsequent sell-off to 1.0890/1.0930 with a 1.0860 stop. I still do not want to be short the Euro at this time.
September Dollar Index
The release of the FOMC Statement resulted in a rally in the Dollar which has seen me go short at 97.30. As I am already long the Euro I have decided to exit this position at 97.20 and I am now flat. Today my only interest in selling the Dollar is on a rally higher to 97.60/97.90 with a 98.20 stop.
September DAX
The DAX struggled yesterday despite the rally in both the US Stock markets and the FTSE. I am still flat and today I will lower my sell level slightly to 11350/11410 with an 11470 stop. I still do not want to be long the DAX at this time.
September FTSE
The FTSE has had a nice rally off the key 6440 support level from last Monday. The rally higher has led me to go short in small size at 6590. As I do not want to risk too much on this trade I have lowered my stop to 6630.
Dow Rolling Contract
The Dow had a lovely spike and reverse on the FOMC Statement release but unfortunately after I went short at 17760 the Dow just missed my 17670 take profit level by 15 points. As I am already short both the S&P and the FTSE I have decided to cover this position at 17740 and I am now flat. Today my only interest in selling the Dow is on a rally higher to 17820/17870 with a 17920 stop. The Dow has strong resistance at the 17850/17900 and I would expect the market to have difficulty in breaking this resistance.
September BUND
No change as my only interest in selling the BUND is still on a rally higher to 154.30/154.70 with the same 154.95 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip lower to 1080/1088 with the same 1069 stop.
Silver Rolling Contract
With Silver trading higher this morning I have decided to cover my long 14.60 position at 14.85 and I am now flat. Today I will again be a small buyer on any dip lower to 14.10/14.55 with the same 13.80 stop.
Recent Comments