A brutal, partial reversal of the past week’s US Dollar surge was the defining feature of markets over the past 24 hours. A poor US Retail Sales Report extended the Dollar losses, but also marked the turning point. The broad Bloomberg Dollar Spot Index was as much as 0.9% lower for the day, but has retraced most of these losses to close down just 0.4%.
With much of March’s US Dollar move driven by the collapsing EUR, it is only fitting that it also provided the turn. Having broken down through eight big figures in the past eight trading sessions, there was always going to be an ugly, near-tern snapback. The dip below 1.05 provided a bridge too far. Or, for the more poetic, it was the 100 level in the US Dollar Index that proved too strong.
We expected this dynamic of an explosive gain in the US Dollar, followed by a bloody correction to be repeated multiple times as we edge toward a Fed Funds Rate lift-off. A sizeable community of investors have yet to join the US Dollar party. Those sitting on the edge tend to jump on board on the momentum of strong moves, only to quickly jump back out as that rally runs out of steam. The focal points for the US Dollar going forward will be the FOMC Meetings and the US Labour Reports.
A soft US Retail Sales Report printed in the late stages of the US Dollar’s squeeze lower. Core Retail Sales fell by 0.2%m/m in February, against expectations of a 0.3% gain. Worse still, the prior month’s 0.2% gain was revised down to a 0.1% fall. The poor outcome was laid squarely at the feet of the bitterly cold weather and record snowfall across the Eastern US. Treasury Yields rallied on the data, with the 10-Year Bond falling to a session low of 2.04%. This was reversed on the back of a poor 30-Year Bond Auction, to the extent that the 10-Year Yield sits unchanged for the day at 2.11%.
Sterling was the only G10 currency to post a loss against the US Dollar, as BoE Governor Carney warned about the impact of currency strength. Carney noted that the Bank would need to take into account the protracted effects of Sterling’s strength on prices, when considering Rate hikes.
On the economic front we have no data due to be released in the Euro-Zone or the UK. At 12.30 pm we have US PPI. Finally at 2.00 pm we have the University of Michigan Consumer Sentiment.
March S&P 500
As I mentioned yesterday the Thursday/Friday ahead of the Quarterly Expirations tends to be the low for the market and this so far has certainly proved to be the case as shortly after I posted the S&P was trading at my 2044 buy level with a 2042 low before having a 20 handle rally which enabled me to cover this position at 2059 and I am now flat. The fact that we also have the FOMC Meeting and press conference next Wednesday means that I do not want to be short the S&P at this time. Today I will move my buy level higher to 2055/2060 with a 2051 stop. Again if I am taken long and subsequently stopped out of this position I will use my ‘5 Handle Rule’ to re-buy with a stop below whatever the low print is. Some of the 2062/2077 ‘Open Gap’ from last Monday/Tuesday has now been filled and I would expect most if not all of this Gap to be filled before the FOMC announcement. My only interest in going short the S&P today is on a further rally to 2072/2077 with a 2081 stop.
EUR/USD
Overnight the Euro has traded lower to my 1.0580 buy level. I am still long and today I will raise my stop on this position to 1.0545. If I am stopped out of this trade I will again look to go long on any subsequent drop to 1.0490/1.0510 with a 1.0465 stop. Given how oversold the Euro is currently trading I do not want to be short the Euro at this time.
US Dollar Index
Finally after a wild trading session for the US Dollar Index yesterday, the Dollar traded up to my 100.10 sell level overnight. I am still short and today I will lower my stop on this position to 100.40.
March DAX
My short 11820 DAX position worked out well yesterday with the DAX trading heavy in comparison to the US Indices. Shortly after I posted the DAX sold off which enabled me to cover this position at 11770 and I am now flat. Today I will again be a small seller from 11840/11880 with an 11920 stop. I will leave my buy level unchanged at 11540/11600 with an 11480 stop.
March FTSE
No change as I am still short from Wednesday at 6755 with the same 6810 stop. Remember a break and close over 6800 will be short term positive again for the FTSE.
Dow Rolling Contract
The positive change in the McClellan Oscillator on Wednesday certainly was one of the main catalysts for yesterday’s 260 point or 1.5% rally in the Dow. Thankfully I covered my short position on noting this positive move in the MO but unfortunately after I posted yesterday the Dow just missed my 17660 buy level by 20 points before having this massive rally and I am still flat. Long term I am still bearish but with next week’s FOMC Meeting on Wednesday I am loathe to go short for more than just a trading position. The fact that the Dow is approaching the key 1800 resistance level I will be a small seller today from 17970/18030 with an 18060 stop. I will also move my buy level higher to 17770/17820 with a 17720 stop.
June BUND
The Bund plan worked out very well yesterday as shortly after I posted the Bund was trading at my 158.65 sell level before having a decent sell-off which enabled me to cover this position before the close at 158.10 and I am now flat. I will continue with my strategy of selling rallies with a tight stop especially with Bund Yields at such a depressed level. Today I will move my sell level slightly lower to 158.40/158.70 with a 159.05 stop. Naturally I do not want to long the Bund at this time.
Gold Rolling Contract
The Gold plan also worked well yesterday as shortly after I posted Gold was trading at my 1150 buy level before again having a nice rally overnight which has enabled me to cover this position at 1159 and I am now flat. Today I will again be a small buyer on any dip lower to 1144/1151 with an 1135 stop.
Silver Rolling Contract
Still no change as I am still long at 15.75 with the same 14.90 stop as Silver continues to trade in a very narrow range, hopefully before breaking higher.
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