Given Euro-Zone developments over the past 48 hours with German 10-year Bund Yields closing at an incredible 0.08% and sharply heightened fears of an early Greek debt default, one could be forgiven for thinking that we would be coming in to find EUR/USD sharply lower and for that to have spilled over to a broadly firmer US Dollar. There has been none of that with EUR/USD trading as high as 1.0820 yesterday afternoon. In an apparently liquidity impaired market, the US Dollar is weaker across the board which is exactly what I have been calling for over the past few days.
Early European-day pressures on the Euro that followed 10 year German Yield breaking below 10bps for the first time and a Financial Times report that Greece had made an informal approach to the IMF about delaying forthcoming debt repayments which of course was denied by Greece and rebuffed by the IMF failed to find follow-through. The single currency recovered back above 1.08 from below 1.0630 when I posted yesterday morning in what one analyst described as ‘a very painful game of two halves, not helped by awful liquidity resulting in extreme moves’. Across the board US Dollar weakness is nevertheless consistent with an ongoing purge of stale Dollar longs.
We had a very mixed bag of US economic releases. Weekly Jobless Claims rose to 294K from 282K last week but is a number still consistent with a 250K+ Monthly Employment gains. The Philly Fed Survey saw the Business Outlook rise marginally to 7.5 from 5.0, just above the 6.0 expected, though the New Orders series was weak at 0.7 down from 3.9 in March and as high as 32.4 last November. Housing Starts were the bigger disappointment, failing to recover much ground after the apparently weather savaged weak February number. At 1039K Starts were well below the 1081K expected. Building Permits, supposedly not weather affected, dropped by a large 5.7% which is much more than the +4.0% February rise.
US 10 year Treasury Yields closed 5bps higher following the Philly Fed release while US stock markets closed flat despite the fact that Citigroup and Goldman Sachs smashed their earnings estimates.
This morning on the economic front we have Euro-Zone Current Account at 9.00 am. At 9.30 am we have UK Average Earnings and Unemployment. This is followed at 10.00 am by Euro-Zone CPI and this will be closely watched by the markets to see if QE has had any positive effect on inflation. This afternoon we have US CPI and the University of Michigan Consumer Confidence at 1.30 pm and 3.00 pm respectively. Meanwhile the IMF Spring Meeting continues in Washington and will be attended by Euro-Zone officials.
June S&P 500
The S&P plan worked out very well yesterday as shortly after I posted the S&P followed the German DAX lower which enabled me to go long at 2093. Subsequently after the US markets opened the S&P managed to hold this now minor support at 2090 before having a nice rally which enabled me to cover this position at 2102 and I am now flat. Today I will again look to buy the market on any further drop to 2089/2094 with the same 2086 stop. Remember a break and close below 2090 will be short-term bearish. My only interest in selling the S&P is still on a rally to 2110/2115 with a 2121 stop.
EUR/USD
Yesterday was very frustrating as having called for a rally in the Euro the market just missed my 1.0620 buy level by 5 points before going on to have a 200 point gain and in the process close over the minor resistance at 1.0750. The fact that we closed over this key level has led to me buying the Euro this morning at 1.0760. I will leave a stop at 1.0695 on this position as I want to give this position some room. As I mentioned in my economic commentary above the Euro should be lower and one very good lesson that I learned when I worked as a trader in BNP Dublin many years ago, that if a market does not go down on bad news then do not be short. As I have mentioned countless times sentiment is at extreme levels and we have too many stale longs for the Dollar not to have a decent correction. If the Euro breaks and closes over 1.1050 it will be very bullish.
June US Dollar Index
Just like the Euro above the Dollar just missed my sell level before having a nice sell-off and I am still flat. Today I will move my sell level lower to 97.90/98.25 with a 98.55 stop. I still do not want to be long the Dollar at this time.
June DAX
The DAX plan did not work out so well yesterday but thankfully by the time I posted the DAX was already in free-fall and thus allowed me to go long at the bottom of my buy range at 12110 before very quickly stopping me out of this position at 12060 and I am now flat. If I am correct in thinking that the Euro is going to mount a decent rally then the DAX is in for a rough ride especially as it is already nearly 30% higher year-to-date. For this reason I will move my sell level lower to 12060/12100 with a wider 12150 stop. I do not want to be long the DAX at this time.
June FTSE
My short 7070 FTSE position worked out well yesterday as the market was heavy all day before finally having a decent sell-off which enabled me to cover this position at 7015 and I am now flat. Today I will again be a small seller on any rally higher to 7050/7080 with a tight 7105 stop. I still do not want to be long the FTSE at this time despite the positive price action.
Dow Rolling Contract
The Dow plan also worked out well yesterday as the market had a nice rally after the US markets opened which allowed me to go short at 18160. This morning the Dow is down hard and this has enabled me to cover this position at 18030 and I am now flat. Today I will again be a small seller on any rally higher to 18080/18130 with a 18180 stop which is just above yesterday’s high print.
June BUND
At this stage it is probably inevitable that the Bund is going to trade with a negative interest rate. Despite this prospect I have gone short this morning in small size at 160.35. If the Bund trades higher to 160.75 I will add to my short position with a 161.10 stop on both positions.
Gold Rolling Contract
The expected sell-off in the US Dollar should lead to a rally in Gold. Shortly after I posted yesterday morning Gold which looked heavy all day finally traded lower to my 1199 buy level. I am still long and I will leave my stop the same at 1189. Remember a break and close over the now major resistance from 1220/1230 will be very positive.
Silver Rolling Contract
No change as I am still long from earlier this month at 16.40 with the same 15.90 stop.
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