Yesterday the Bank of England departed from it’s previous ‘pre-Carney’ approach and issued a detailed statement despite leaving Bank Rate and the £375 billion Asset Purchase Programme unchanged. The Bank said that the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy. This so called forward guidance is, the Bank suggests, expected to be formalised at the August MPC meeting following which Mr Carney will deliver his first press conference when presenting the Quarterly Inflation Report.
Then, 90 minutes after the BoE announcement, ECB President Dragi took a similar approach at his press conference, pledging that interest rates would remain low for an ‘extended period’ and saying that there had been an ‘extensive discussion’ amongst ECB Governing Council Members about a possible rate cut. The impact from both the BoE and ECB”s commentary was immediate with Sterling taking a dive and the Euro falling across the board. European Equities reversed Wednesday’s hammering and Bond markets also rose smartly on the news with 10 Year German Bonds yields down 12 basis points. Peripheral yields were also lower as fears of an imminent collapse of the Portuguese Government eased somewhat.
This morning on the economic front we have German Factory Orders followed by the big one from the US, the Non Farm Payrolls and the Unemployment Rate.
September S&P 500
This extraordinary volatility in all markets continues in a relentless fashion as markets try to interpret what the various Central Banks are going to do with Monetary Policy and when the QE process will begin to taper. I don’t envy their task and this is whats makes trading so exciting but very challenging at the moment. I cannot emphasise enough how important it is to only be trading in small size with a wider stop at this time until Central Bank policy becomes clearer.
Yesterday, as expected, I was stopped out of my 1612 short position at 1619 and I am now flat. Given today is Non Farm Payroll day I am going to stay flat and try to react to the news after its release. With the US markets closed yesterday and the Futures market following the European Indices higher we now have a large up gap from Wednesday’s close. The Futures market has now closed the 1622 open Gap from over two weeks ago and if we get a stronger than expected 165k Payroll Number today I will be a seller into the 1632/1640 strong resistance area in small size with a 1643 stop. If the number is weaker than expected I will be a buyer on any dip to 1608/1613 with a 1604 stop.
Euro/USD
The Euro gapped lower on the comments from Dragi yesterday and I was able to buy it at 1.2910. I have covered this position this morning for a small loss at 1.2900 as I want to be flat ahead of today’s payroll data. Even though the Euro is very oversold my only interest in buying it is on a dip to 1.2790/1.2820 with a 1.2740 stop. A break and close below 1.2750 (which is the year low so far) will be very bearish. I will also be a seller on any rally to 1.2960/1.2990 with a 1.3025 stop.
September DAX
This unbelievable volatility in the Dax continues with the market now 300 points higher than the low made on Wednesday morning and this after the market had fallen hard over the previous few days. You have to go back to 2008 to witness this same volatility. The Dax rallied to my 8020 sell level yesterday and, just like the Euro, I have covered this position at a breakeven as I want to be flat going into the payroll data at 1.30 pm. Today I will be a seller on any rally to 8070/8100 with a 8120 stop. I will also be a reasonable buyer on any dip to 7870/7910 with a 7850 stop. This 7860 level is key and as long as we stay over this level the Dax is bullish.
September FTSE
The reaction of the FTSE to Governor Carney’s first MPC meeting was incredible as we had one of the largest up moves in the FTSE in recent history. I went short the FTSE at 6270 only to quickly stopped out of my position at 6305 and I am now flat. Today I will be a buyer on any dip to 6330/6360 with a 6295 stop. I do not want to be short the FTSE at this time.
Gold Rolling Contract
Today I want to lower my Gold buying level to 1220/1230 with the same 1208 stop. A break and close below 1210 will be very bearish.
Silver Rolling Contract
Silver has traded down to my 19.20 buy level and I am now long in small with an 18.80 stop. If I am stopped out I will be a more aggressive buyer on any dip to 18.10/18.40 with a 17.90 stop.
September BUND
I was very unlucky as the Bund rallied to my 142.60 sell level before stopping me out at 142.95 only for the market to trade down to the 142.00 level. Today I still do not like the Bund as I feel this market is on borrowed time and I will be a seller on any rally to 142.50/142.80 with a 143.10 stop which is just above yesterdays high.
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