The European Central Bank cut the Main Refinancing Rate by 25 basis points to 0.5% as expected yesterday but it was the prospect of further action that had the bigger impact on markets. President Dragi said the ECB would consider charging banks to park excess overnight cash with the ECB (currently the deposit rate is zero) and that a further cut in the Main Refinancing Rate was possible. Dragi also said that the ECB would continue to allow stressed banks to access unlimited ECB liquidity until at least July 2014, a one year extension when previously the ECB had announced only 6-month extensions. His comments again highlighted that the risks surrounding the Euro-Zone economic outlook continue to be on the downside. The Euro fell from 1.3200 to 1.3065 whilst the US Dollar Index was the key beneficiary, climbing from around 81.60 to trade above 82.20 currently. Demand for the US Dollar was also strong relative to the Yen.
The ECB meeting came after the final Manufacturing PMI data for April confirmed contracting activity. The prospect of further ECB action saw European Equity markets recover some ground after Dragi’s comments, whilst US markets also got a boost from the solid Jobless Claims which fell to 324k last week, down from 342k and are now at their lowest rate since 2008. The Jobless Claims data provides some confidence that today’s Payrolls forecast of 140k will be hit after the disappointment of the weaker ADP Employment data reported last Wednesday.
Today is release day for key economic data for May. This morning we have UK PMI Services and Euro-Zone PPI, followed in the US at 1.30 pm by Non Farm Payrolls, Unemployment Rate and Factory Orders. Then at 3.00 pm we have the ISM Non Manufacturing Composite. Later, the Fed’s Lacker speaks on the economy in Virginia.
Note: Despite Monday being a bank holiday in Ireland, markets will be open and we will be posting a Daily Update as normal.
June S&P 500
The S&P completely reversed Wednesday’s sell off as the the mantra of not having 2 hard days in a row continues. It just missed my 1575 buy level before having a nice rally up to my 1593 sell level with a 1594 high. As today is Non Farm Payroll day it is too dangerous to have a position into the Numbers and I have covered my 1593 short sale for a tiny profit at 1591.25 this morning and I am now flat. It is hard to predict these Numbers today as we had the weak ADP Employment data on Wednesday whilst yesterday we had the best Weekly Jobless Claims data since 2008. It is hard to see the market falling much given how strong the Nasdaq 100 is and the fact that we cannot break the key 1570/1570 support levels. Today if we get a weak Number I will be a buyer from 1575/1580 with a 1569 stop, and we get a strong Number I will be a seller from 1605/1610 with a 1613 stop.
Euro/USD
Yesterday the Euro behaved as expected because just after the Interest Rate announcement from the ECN it traded down to my 1.3130 buy level with a 1.3110 low. I took profit at 1.3190 on this position and I am now flat. It is very hard to see the Euro falling much further as long as the peripheral Bond Yields continue to contract and today I will be a small buyer on any dip to 1.3040/1.3060 with a 1.3015 stop and I will also look to sell any rallies to 1.3190/1.3220 with a 1.3250 stop.
June DAX
Shortly after Dragi spoke the Dax spiked up to my 7995 sell level before falling 100 points in a few minutes. I went short at 7995 and I took profit at 7938 and I am now flat. The Dax is at the top of the Bollinger Band and the Williams Index has started to turn down but I do not want to have a position ahead of the Payroll data at 1.30 pm. If we get a strong report I will be a small seller on any rally to 8005/8025 with a 8040 stop. If we get a weak number I will be a buyer on any dip to 7880/7905 with a 7845 stop.
June FTSE
The FTSE trade worked okay but you had to be quick to take your profits given the volatility. It spiked to my 6415 sell level before having a nice sell off. I took profit at 6375 and I am now flat. Today I am a seller on any further rally to 6440/6460 with a 6475 stop. I will also look to buy the FTSE on any dip to 6360/6380 with a 6350 stop.
June BUND
Yesterday the Bund dropped down to my 146.40 buy level with a 146.18 low and I took profit at 146.95 on this position. It then continued to rally and traded up to my 147.15 sell level. I have taken profit on this short position this morning at 146.85 as I do not want to have a position ahead of 1.30 pm and I am now flat. Today I will look to buy the Bund on any dip to 146.30/146.50 with a 145.95 stop. I will also look to sell the Bund on any rally back to 147.15/147.40 with the same 147.60 stop.
Gold Rolling Contract
Gold has hit my 1477 sell level this morning but I am not too confident in this position as I expected Gold to sell off further, given how weak inflation is in the developed world. I have only gone short in very small and I will leave the same 1595 stop on this position.
Recent Comments