In a data light trading session, it was going to be left to market positioning and some underlying drivers that would likely drive FX and other key markets yesterday. The US reporting season is just kicking off with little news for markets to run on. The Dow S&P and NASDAQ have all closed higher by 0.3-0.5% after having a nasty sell-off shortly after US markets opened yesterday while Oil prices steadied after Wednesday’s sharp decline.
In the FX universe, the US Dollar has made some further gains against most of the majors. The Bloomberg Spot Dollar Index closed up 0.8%, the main casualties being the Euro that has fallen back to 1.0630 this morning, the Swiss Franc, Sterling and even the Canadian Dollar. The latter lost more net ground despite no further weakness in Oil prices, though the CAD was not helped by a softer than expected building permits report for February.
In the case of the Euro, the IMF confirmed that Greece had made a EUR450m payment due yesterday. The next hurdle is a EUR420m Treasury Bill payment due 14 April. Analysts expect the Greek Government will be able to find enough cash to meet that payment but may struggle beyond that.
It is hard to avoid the conclusion that carry trades are playing a part. US Treasury Yields pushed higher on the day as opposed to mixed-to-flat Euro-Zone Bond Yields. The EUR/USD remained very weak throughout the whole trading session and eventually broke through key support at 1.0710 after lunch, weighed down by growing divergence between US and EU Bond Yields. Note that German Bond Yields out to 8 years are now in negative territory despite the German Economy improving as the Euro is now very much the funding currency. Incredibly Mexico sold the World’s first 100-year Government Bond denominated in Euros. The March 2115 Bond was sold at a yield of just 4.2% compared to its 30 year trading yield of 2.77%. Bloomberg has reported that emerging markets have issued EUR20bn in Q1, the second busiest Quarter in a decade.
Today is another very light day for economic data. At 9.30 am the UK will release its latest Industrial Production. Finally at 7.00 pm we have US Monthly Budget Statement. However it is a very busy afternoon for Fed speakers ,with Lacker and Kocherlakota due to speak at 1.30 pm and 5.20 pm respectively.
June S&P 500
The S&P plan worked out very well yesterday on what turned out to be another very volatile US trading session. The idea of selling rallies in both the Dow and S&P continues to work out very well and yesterday was no exception as shortly after the US markets opened the S&P spiked higher to my 2079 sell level with a 2081 high before having a nice sell-off which enabled me to cover this position at 2070 and I am now flat. I have to respect the fact that the S&P has now rallied very strongly off last Monday’s 2040 lows and closed strongly yesterday as the market finally took out the next minor resistance at 2085. I still believe that the US stock markets in general are an accident waiting to happen but until we get a sell extreme that lasts more than a couple of days while at the same time breaking and closing below the now major support at 2035/2040 it is very hard to be short the market for more than a few hours. Today I will move my buy level higher to 2069/2074 with a tight 2065 stop. I will also look to go short on any further move higher to 2093/2098 with a wider 2104 stop. Remember as hard as it is for me to say this but a break and close over 2100 will again be short term positive.
EUR/USD
My long 1.0750 position which looked good after I posted yesterday morning was finally stopped out at 1.0690 shortly after lunch and I am now flat. With the Euro trading at 1.0620 this morning yesterday was another great example of how important it is to have stops in the market especially given the incredible volatility that we are witnessing at this time. This morning the Euro is trading at the bottom of its Williams Index but the bottom of the Bollinger Band is a little lower at 1.0560. Given how oversold the Euro is trading I will again look to buy the market on any further dip to 1.0545/1.0575 with a tight 1.0520 stop. Despite the negative price action in the Euro I still do not want to be short the market at this time.
June Dollar Index
It is interesting that when I read Fed Member Dudley’s speech earlier this week I was struck by how negative he was with regards to rate ‘lift off’. In his opinion we are not ready to raise rates as we have no wage inflation and the strong Dollar is a major factor in his reasoning. If you look at the Interest Rate Futures curve they are only pricing in one rate hike this year. When I read Dudley’s speech and especially the speech given in London two weeks ago by Chicago President Charles Evans who is even more dovish than Dudley I find it very hard to be long the Dollar. Unfortunately after I posted yesterday morning the Dollar traded higher to my 99.10 sell level before stopping me out of this trade at 99.50 this morning and I am now flat. The next major hurdle for the Dollar to break is the 100.20 high made two weeks ago and today given how overbought and over extended the Dollar is trading coupled with sentiment towards the Dollar at extreme levels I will again look to go short from 99.80/100.20 with a 100.50 stop.
June DAX
The DAX plan also did not work out yesterday as shortly after lunch the DAX which was very bid all day traded higher to my 12210 sell level before stopping me out of this trade for a small loss at 12250 and I am now flat. The DAX is again trading at new all-time highs but at the same time is trading at the top of its Bollinger Band and Williams Index. Today I will again look to go short on any further mover higher to 12310/12350 with a 12380 stop. My only interest in buying the DAX is on a dip lower to 12130/12175 with a 12095 stop.
June FTSE
This morning the FTSE is approaching the all-time high made two weeks ago. Yesterday very late after I posted the FTSE traded higher to my 6975 sell level. I am only short in small size and I will raise my stop to 7020 which is just above the contract highs made last Month. I will also be a small buyer on any dip lower to 6895/6930 with a 6865 stop.
Dow Rolling Contract
The Dow plan worked out very well yesterday as shortly after the US markets opened the Dow traded higher to my 17950 sell level before having a very nice sell-off which enabled me to cover this position at 17860 and I am now flat. There is no doubt that with Apple now a member of the Dow it is making it more difficult for the Dow to trade lower especially given its weighting in the Index. However I will keep with my strategy of selling rallies with a tight stop which has worked out so well in 2015. Today I will again look to go short from 18010/18060 with a 18090 stop.
June BUND
Unfortunately I had my stop too tight on my 159.15 short position as I was stopped out near the highs of the day at 159.40 for a small loss and I am now flat. It is amazing that with the German economy doing so well that German Bond Yields out to 8 years are negative. Coming from trading a high interest rate back ground of the late 80s and early 90s I am staggered by the low Bond Yields. However I will still keep with my strategy of selling rallies with a tight stop which just like the US stock markets has also worked out very well so far this year. Today I will still be a seller from 159.55/159.85 with a 160.10 stop.
Gold Rolling Contract
No change as I am still long at 1199 with the same 1191 stop which so far has not got hit. Again if I am stopped out of this trade I will be a more aggressive buyer on any dip lower to 1174/1182 with a 1165 stop.
Silver Rolling Contract
No change as I am still long at 16.40 with the same 15.90 stop.
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