Risk asset markets dutifully rallied after the Fed formally launched QE3 and agreed to extend its forward guidance on low interest rates from the previous point in late 2014 to at least mid 2015. The additional $40billion of Quantitative Easing effectively involves printing Cash on the LHS of the balance sheet and buying Mortgage Backed Securities on the RHS. It also extended Operation Twist, the selling short of dated US Bonds and buying longer term Bonds, until the end of the year and this will be worth $45billion per month. However the FOMC Statement also said they would continue to stimulate the economy until they get an improved labour market which means we could have QE4 and even a QE5. They said that they expect QE3 to be effective and as a result they cut the unemployment rate forcast for 2014 to 6.3%-7% from 7%-7.7% previously. Equities and Commodities rallied strongly after Bernanke over delivered on market expectations and the US Dollar was hit hard against all the major currencies.
Today we have some important Economic data from the US with Retail Sales and the Michigan Consumer Survey. We also have CPI and Industrial Production at 1.30pm. In Europe, Greece is to propose its budget cuts to meet its commitments and receive bailout funds. The EU Finance Ministers are also meeting in Cypress.
Sept S&P 500
I have to admit I never expected Bernanke to do what he did and we are now living in dangerous times as the Central Banks continue to manipulate the markets. If you go back to January when Bernanke also stroked the markets we rallied for a while and then the market just collapsed as it ran out of more buyers. I was lucky yesterday as I left an order to sell the S&P1445 and I was lucky enough to cover at 1440. Unfortunately I went short again at 1450 and stopped myself out at 1456 and I am now flat. The market is extremely overbought but is very hard to short as Bernanke implied if the economy does not improve he will do QE4. The next resistance area is the 1465/1470 level and I will look to go short here with a 1472 stop. I do not want to be long at these levels.
EURO/USD
Like the S&P, I had an order into Bernanke to go short at 1.2960 and, after I was filled, the Euro dropped 80 points. I took profit at 1.2895 and I went short again late last night at 1.3000 only to be stopped out this morning at 1.3020 and I am now flat. If we can close over 1.3000 for two days it will be another bullish breakout and the market will look to challenge the February high at 1.3400. I am going to watch and observe the Euro today and I will only look to short on a spike to the 1.3080/1.3120 area with a 1.3140 stop. I will also look to go long in front of 1.2950 with a 1.2920 stop.
Dec BUND
The Bund worked really well yesterday as I was able to take profit on my 139.45 long at 140.35 and I also went short at this level. As I have said for the last week I don’t like the Bund and I am going to lower my stop to 140.00 on this short. If we dip down to the 139.20 I will look to take profit here. If the market subsequently rallies back to the 139.90/140.20 I will look to go short again with a 140.40 stop.
Sept DAX
The Dax hit my sell level this morning at 7440 and I am now short in small with a 7470 stop. I will look to take profit from 7360/7390.
Sept FTSE
The FTSE just missed my buy level and the market finally caught up with the rest of the Equities with a 150 point rally. I still like the FTSE and I will look to go long from 5840/5860 with a 5830 stop. As I said yesterday I do not want to be short this market.
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