As expected by most, US Fed Officials left the Fed Funds Rate unchanged at 0.25% – 0.50% and lowered their projections of Future Rate hikes with Esther George who is the Kansas Fed President the only dissenter. The median of policy maker’s projections now sees the Fed Funds Rate at 0.875% at the end of 2016, implying two 25bps hikes this year compared to four hikes in December. Rate Hike projections were also lowered in the outer years. By the end of 2017, the Funds rate is now seen at 1.875% versus 2.375% previously and median forecast for the end of 2018 is now 3.0% compared to 3.25% in December. The longer run projection was also lowered to 3.25% from 3.50%. The lower rate forecast projections are predicated on the view that growth will remain sluggish. Now growth for 2016 is seen at 2.2% down from 2.4% in December.
To mark my 1000th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2500 for my Platinum Daily Commentary which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested please email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 125 points yesterday and is now ahead by 1515 points for March having made 2265 points in February and a record 3365 points in January. Since I started this service last June it has made over 21,000 points.
For the year, Unemployment is expected to fall only marginally to 4.7% and somewhat surprisingly PCE inflation is expected to decline to 1.6% compared to its current level of 1.7%. The Statement also gave a sense of a more dovish tone. Previous comments in relation to balance of risks to the outlook were dropped and instead a new sentence was added noting that ‘global economic and financial developments continue to pose risks’.
Ahead of the FOMC announcement and in a light trading environment, the US Dollar was well bid while equity markets and core bond yields traded mostly sideways. Pre – FOMC the DXY Index was up 0.25% with the US Dollar strong against almost all the major currencies. The CAD was the one exception, aided by a rally in oil prices.
Post the announcement reaction to a more dovish Fed has boosted risk assets and this has also been aided by press conference comments from Fed Chair Yellen emphasising the fact that ‘caution is appropriate’. US Equity Indices closed 0.4% – 0.8% higher while the Dollar is weaker across the board with both the EUR/USD and the Dollar having their second Key Day Reversals in less than a week.
US Treasury Yields have also reacted positively, with 10 Year Treasuries rallying 8bps to 1.92% immediately after the announcement.
A more dovish Fed is no doubt risk positive, but as we learned earlier, US core CPI rose to 2.3% from 2.2%yoy, reaching its highest level since May 2012. The new projections show the Fed expects a gradual path to 2% in core inflation by the end of 2018. However, if the recent upward trend in core inflation is any guide, that 2% traget will be reached a lot sooner than expected.
In other news Housing Starts came in better than expected at 1178K versus 1150K expected while Industrial Production fell lower than forecast. The UK Budget showed downgraded economic forecasts and weaker Fiscal Metrics. Both tax cuts and spending cuts were pledged amidst a promise to return to budget surplus by 2019/2020.
This morning on the economic front we have Euro-Zone CPI and Trade Balance at 10.00 am. At 12.00 pm we have the Bank of England rate decision and Asset Purchase Announcement. This is followed at 12.30 pm by the US Weekly Jobless Claims, Current Account Balance and the Philly Fed Business Outlook. Finally at 3.00 pm we have the JOLTS Job Openings and the Leading Index.
June S&P 500
For anyone who bought the S&P on a dip lower to my 1999 buy level with a 1997.25 low print this trade worked very well as we were trading at 2012 ahead of the Fed announcement. Unfortunately I waited until we got the announcement. Subsequently the S&P traded back to a low print of 1999.50 before spending the rest of the session trading higher. The S&P has still got a large ‘Open Gap’ in the June Contract from 1979/1994 and as we know all ‘Open Gap’s get filled as shown by the close yesterday of the huge 2012/2035 ‘Open Gap’ in the March contract going back to the start of the year. There is no doubt the Fed made a mistake in hiking interest rates in December and it is clear now that all Central Banks will do whatever they have to, in order to keep stock markets afloat. There is no doubt this market is extremely overvalued as it is very hard to sustain a multiple of 20 when you have just lowered US GDP to 2.2%. It looks like we will never see high interest rates again as the level of debt outstanding is just incredible as a return to a normal interest rate environment would make servicing these debts unsustainable. The next key level to watch is 2044 in the Cash S&P which equates to 2034 in the June Contract. Earlier this morning the S&P traded higher to my 2026 sell level. I am still short and I will now lower my stop on this position to 2032. If I am stopped out of this position I will be a more aggressive seller in front of 2037 with a 2044 stop. A break and close over 2040 opens up the possibility of a move higher to 2060/2070 from where we broke down at the end of December. I will also move my buy level higher to 2005/2012 with a 1999 stop.
EUR/USD
As mentioned in my Daily Commentary above the Euro had its second upside Key Day Reversal since last Thursday. As many of you know at this stage I have been very bullish the Euro ever since we had both a upside Key Day and Key Week Reversal following the famous ECB Meeting on December 3 last. Unfortunately the Euro missed my 1.1030 buy level with a 1.1058 low print before trading to 1.13 this morning. However this huge move higher sees the Euro trading at the top of both its Bollinger Band and Williams Index plus we have very strong resistance at the 1.1340 level, a break and close above opens up a move to the 1.18 next major resistance level that I have been talking about since last November. Today I will move my buy level higher to 1.1180/1.1220 with a 1.1145 stop. I will also be a small seller on any further rally to 1.1345/1.1375 with a 1.1410 stop.
June Dollar Index
The Dollar also missed my sell level by a few points before also falling nearly 200 points and I am still flat as the Dollar also had its second downside Key Day Reversal since last Thursday. Today I will lower my sell level to 95.70/96.00 with a 96.30 stop. Despite the Dollar been oversold I do not want to be long the Dollar at this time.
June DAX
I have now rolled to the June Contract as the March Contract expires tomorrow morning. The June Contract trades at a 40 point premium to the March Contract/DAX Cash Market. Yesterday my March DAX plan worked well as shortly after lunch the DAX traded lower to my 9920 buy level before having a nice rally ahead of the FOMC which enabled me to cover this position at my 9965 T/P level and I am now flat. The stronger Euro is hindering the progress of the DAX but despite this I will still look to buy the June DAX on any dip lower to 9870/9920 with a 9835 stop. I will still look to sell the DAX on any rally higher to 10140/10200 with a 10250 stop. Remember a break and close over the huge resistance level at 10100/10200 will be short – term bullish.
June FTSE
I have now rolled to the June Contract which is contrast to the DAX above is trading at a 60 point discount to the March Contract/Cash FTSE. I am still flat and today I will look to buy the June Contract on any further dip lower to 6055/6085 with a 6025 stop. Given the weakness of Sterling I do not want to be short the FTSE at this time.
Dow Rolling Contract
My Dow plan worked well yesterday as shortly after the FOMC announcement the Dow traded higher to my 17370 sell level before having a nice sell-off which enabled me to cover this position at my revised 17310 T/P level as emailed earlier to my Platinum Members and I am now flat. There is no doubt the weaker Dollar is helping the Dow stocks making it difficult to short the market which has now risen 2000 points off its mid – February low print at 15400. Again we are now back to the scenario that prevailed for most of last year that you can only be short stock markets for a few hours/days before the Central Banks who hold all the aces will intervene. However after this recent huge move higher the Dow is now overbought on a Daily Basis and today I will again look to sell the market on any further move higher to 17450/17510 with a 17550 stop. My only interest in buying the Dow is on a dip lower to 17210/17280 with a 17150 stop.
June BUND
The BUND opened above my sell range this morning and I am still flat. Despite the BUND rallying the huge downside Key Day Reversal still holds and for this reason I will again look to sell the BUND on any move higher to 162.35/162.65 with a 162.85 stop.
Gold Rolling Contract
Gold missed my 1223 buy level with a 1226.50 low print ahead of the FOMC before having a $30 rally and I am still flat. Today I will move my buy level higher to 1239/1247 with a 1233 tight stop.
Silver Rolling Contract
My long 15.28 Silver position worked well yesterday with the market having a nice post – FOMC rally which enabled me to cover this position at my 15.48 T/P level and I am now flat. Today I will again look to buy Silver on any dip lower to 15.20/15.50 with a 14.80 stop.
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