The Euro ended yesterday’s volatile trading session weaker and the US Dollar a touch stronger thanks to ECB President Draghi banging the drum about QE, the ECB staff downgrading their Euro-Zone growth and inflation forecasts and a pretty comforting set of US data. With China out yesterday (and today) for its holidays, the AUD has pivoted in a ¾US cent range around 0.70 and sits just above that figure in early trade today with no more local data this week. President Draghi would be happy with the market’s response, the Euro lower and European Bonds stronger, and across markets.
For anybody following my new Platinum Service it made 90 points yesterday and is now ahead by 755 points for September. The previous three months saw gains of 2195, 1810 and 3045 points respectively.
Rather than increasing the rate of QE, ECB President Draghi, spoke forcefully of the ECB’s commitment to complete the €1.1tr program, continuing with it to at least September 2016, its previous commitment. Along with its downward revision to growth and inflation, it also indicating that it could buy up to 33% of a bond issue rather than 25%, though whether this has been a constraint on implementing QE to date is not known. Growth was revised down this year by 0.1% (to 1.4%) and by 0.2% for next (to 1.7%), while inflation was cut by 0.2% this year (to 0.1%) and for next year by 0.4% (to 1.1%). Inflation is not forecast to reach within sight of 2% (1.7%) until 2017.
He said that the economic recovery had continued but that it had been somewhat weaker and that taking into account the most recent developments in Oil prices and recent exchange rates, there were still downside risks to their latest inflation forecasts. There was more a sense that the downshift in Oil and market volatility had more than a temporary risk to the Euro area’s inflation outlook than say from most recent Fed speakers. Whether it was thin markets ahead of US long weekend or implied threats to do more, or his forcefulness, the Euro dropped a big figure in an instant, from 1.122 to 1.112/1.113, testing below 1.11 before settling above 1.11, trading around t 1.1130.
This price action was strengthened by a lower than expected US Trade Deficit in July and a re-assuring read from the August ISM Non-Manufacturing Index (59 cf 60.3) with new orders at 63.4 and employment at a more than respectable 56.0 ahead of Non –Farm Payrolls this afternoon.
The US equity markets had another wild trading session with the Dow having traded as high as 16540 before again turning on a dime in the last few hours of trading and closed unchanged. This weaker theme is continuing this morning after the Fed’s Kocherlakota said that the US was experiencing slow moderate growth and has not changed his mind that the Fed should not raise Interest Rates this year.
This morning on the economic front we already had the release of German Factory Orders which came in much weaker than expected at -1.4% versus -0.6. At 9.30 am the Bank of England will release their Inflation forecasts for the next 12 months. This is followed by the US Non-farm Payrolls at 1.30 pm. The market is not expecting any major payrolls surprise, the consensus seeing virtually unchanged headline growth of 217K after last months’s 215K gain together with an Unemployment rate of 5.2%, down from 5.3%. While the initial focus will be on those headlines, there’ll be just as much if not more interest in Average Hourly Earnings, together with any revisions and the U6 Underemployment Rate.
Ahead of payrolls this afternoon the Fed’s arch-hawk Lacker makes “The Case Against Further Delay” in Fed Policy. That’s scheduled to start 20 minutes at 1.10 pm before NFP are released so may well roll into and be overwhelmed by payrolls, not that Lacker’s views are at all any surprise. He’s a FOMC voter this year, but he has not dissented from the FOMC on-hold view right through this year.
There is also the G20 Finance Ministers/Central Bank Governor’s meeting over the weekend in Ankara, Turkey that might well create some newswire coverage.
September S&P 500
It took a while but finally my S&P plan worked well yesterday with the late sell-off enabling me to go long the S&P at 1943 before the market had a nice rally to 1954 which enabled me to cover this position at my 1951 T/P level as outlined earlier to my Platinum Members and I am now flat. As today is NFP I will as usual go flat into this announcement. If the market sells off after this release I will look to go long on any dip lower to 1923/1930 with a 1918 stop, If I am taken long and subsequently stopped out of this trade I will be a more aggressive buyer from 1904/1912 with a 1897 stop which is just below last Tuesday’s low print. If the S&P rallies following the NFP announcement I will look to go short on any rally higher to 1958/1964 with a 1971 stop. Yesterday’s move again proves that no matter what ‘Open Gap’s are left in the S&P they always get filled at some point.
EUR/USD
The Euro plan did not work well yesterday as immediately after ECB president spoke about more QE the Euro fell like a stone and in the process traded lower to my 1.1150 buy level before stopping me out of this position for a small loss at 1.1110 and I am now flat. Despite Dragi’s comments yesterday I am not convinced that the Euro is going to continue to trade lower as no Central Bank wants a strong currency at this stage of the so called economic recovery. The Strong Dollar is having a detrimental effect on the earnings of the major US Corporations and I still believe that the Fed will only be able to do a token one or two rate hikes before tipping the US back into recession. If this is the case then the Dollar is priced too strong. Today I will continue with my strategy of buying dips and if the market falls following the NFP I will be a buyer from 1.1025/1.1075 with a 1.0990 stop.
September Dollar Index
Just like the Euro above I was stopped out of my short 96.05 Dollar position for a small loss at 96.40 and I am now flat. Today I will again look to go short on any rally higher to 96.70/97.10 with a 97.40 stop.
September DAX
No change as I am still a small buyer on any dip lower to 10020/10070 with the same 9970 stop. I will also look to go short again on any rally higher to 10340/10390 with a 10430 stop.
September FTSE
The FTSE plan also worked well yesterday as the market which was bid all day eventually hit my 6210 sell level before selling off. Unfortunately I emailed all my Platinum Members to T/P too early at 6185 and I am now flat. There is no doubt that the FTSE is the weakest of the main European Indices as the price action continues to be weak. The market again ran into very strong resistance at the 6200/6240 resistance level. Today I will lower my sell level to 6160/6190 with a 6225 stop which is just above yesterday’s high print. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
The Dow plan also worked well yesterday with the market having a nice rally shortly after the US markets opened as it rallied to my 16520 sell level. Subsequently the market got slammed again which enabled me to cover this position at 16450 as again outlined to my Platinum Members and I am now flat. The Dow has major support at 15979 which was the low following the aggressive sell-off last Tuesday and a break and close below here will again be short-term negative. Today my only interest in buying the Dow is on a dip lower to 15960/16020 with a 15910 stop. I will also look to go short on any rally higher to 16430/16500 with a 16550 stop. The Dow needs to break and close over 16670 which is last Monday’s high to put the market back on a positive footing.
September BUND
Following Dragi’s press conference yesterday the BUND spiked higher to my 154.00 sell level before stopping me out of this trade this morning for a small loss at 154.30 and I am now flat. The break and close over 153.80 is short-term positive and today I will be a small buyer on any dip lower to 153.20/153.60 with a 152.90 stop. I do not want to be short the BUND at this time.
Gold Rolling Contract
Unfortunately my long 1131 Gold position was also stopped out for a small loss at 1123 shortly after I posted yesterday morning and I am now flat. Today I will again be a small buyer on any further dip lower to 1108/1115 with a 1099 stop.
Silver Rolling Contract
Silver continues to out-perform Gold at this time as in contrast to Gold above Silver rallied after I posted yesterday morning which enabled me to cover my long 14.50 position at 14.80 and I am now flat. Today I will again be a buyer on any dip lower to 14.30/14.60 with a 13.90 stop.
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