The long awaited economic stimulus package from the ECB was announced yesterday to great anticipation. Mr Dragi had been promising something for a long time and had failed to deliver so expectations were high. The package announced is undeniably positive for European equities which rallied in response to the release. Bond Yields were broadly lower and Gold was stronger but for the Euro it was the usual buy the rumour and sell the fact story. The ‘risk on’ market that this news created was Dollar negative across the board.
So, what did the package involve? The widely expected part was a lowering of the interest rate paths, -0.10 basis points in the Refinancing Rate to just 0.15 basis points and -10 basis points in the deposit rate to -10 basis points and -35 basis points for the marginal lending rate. The most important part was the announcement that the funds held at the ECB by banks in excess of their reserve requirements will now cost 10 basis points to stay there rather than earn interest. This initiative is intended to force banks to lend these funds into the broader economy. Other measures are also likely to boost lending and increase money supply.
However, the ECB did not but promises they will, implement a true QE programme of buying Asset Backed Securities. They say they will accelerate their investigation into this which means that they have kept something back for later.
The Dow and S&P having briefly sold off after the US markets opened subsequently rose to close yet again at new record levels.
This morning on the economic front we have UK Trade Balance at 9.30 am. This is followed at 10.00 am by German Industrial Production and Trade Numbers. At 1.30 pm we have US Non Farm Payrolls and the Unemployment Rate.
June S&P 500
Yesterday I broke my own rule of never running a position into a major announcement which I did by staying short the S&P at 1926 for me only to be stopped out, as soon as the ECB announcement was made, at 1931. At least I planned to go short again on any 5 handle drop which happened after the S&P traded up to 1935 which put me short at 1930 and after a nice drop I was able to cover this position at 1924 and I am now flat. As I have mentioned over the past 4 months that I expect the S&P to make at least a short term top in the 1935/1950 resistance zone which we are now in. As today is Non Farm Payroll day and despite the S&P again trading at the top of the Bollinger Band and Williams Index I am going to stay flat until we get the data. After the data is released I will be a seller from 1942/1948 with a 1954 stop. Given how overbought and over extended that this market is currently trading I do not want to be long at this time. If the market sells off after we get the data I will look for a subsequent rally to go short.
Euro/USD
The Euro plan worked perfectly yesterday as it traded down to my buy level before having a nice 160 point rally from the 1.3502 low. I went long at 1.3520 but unfortunately I covered my position too early at 1.3570 and I am now flat. I think it is very significant that we closed back above the key 1.3620 resistance level as in the process the Euro had a Key Day Reversal to the upside. Today I will be a buyer on any dip to 1.3600/1.3630 with a 1.3575 stop. I do not want to be short the Euro at this time.
US Dollar Index
The Dollar Index plan also worked very well yesterday as I was able to raise my stop after the ECB announcement which saw the Index briefly break 8070 and I was subsequently taken out of my 80.20 position for a take profit at 80.50 and I am now flat. Today I am going to lower my buy level as the Dollar Index also had a Key Day Reversal yesterday to 79.70/79.90 with a 78.35 stop.
June DAX
The Dax plan also worked well yesterday as after the ECB Rate announcement it spiked to my 10005 sell level before having a nice sell-off which enabled me to cover this position at 9965 and I am now flat. I have been saying for weeks that I expected the Dax to break this key 10000 level and we finally did it yesterday. I still believe that it will also put in a major top between 10200/10300 and I will still look to put on a more macro position in this area with a wider 10450 stop. Today I will again be a small seller on any rally to 10020/10060 with a 10080 stop.
I am still short my Dax/FTSE spread at 3120 with a 3190 stop and if I am stopped out of this position I will look to reset this spread between 3205/3245 with a 3295 stop.
June FTSE
The FTSE plan also worked well yesterday as shortly after I posted it traded down to my 6795 buy level and after a nice rally I was able to cover this position at 6830 and I am now flat. The FTSE continues to underperform both the Dax and major US Indices and today I will again be a small buyer on any dip to 6780/6800 with a 6760 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow plan also worked yesterday as shortly after we got the ECB announcement it spiked to my 16800 sell level and after a nice sell-off shortly after the US markets opened I was able to cover this position at 16740 and I am now flat. I am going to stay flat until we get the Non Farm Payrolls out of the way. Following this data release I will look to sell the Dow from 16870/16920 with a 18960 stop. Given how overbought the Dow is trading I do not want to be long at this time.
September BUND
The Bund has now rolled to the September with a discount of 140 points. The key level for the Sept Bund is at 144.60 and as long as we hold this level the Bund is okay. Today I will be a small buyer on any dip to 144.80/145.05 with a 144.50 stop.
Gold Rolling Contract
Finally the Gold rally that I have been looking for happened to a small extent yesterday which allowed me to cover my 1243 long position at 1253 and I am now flat. The 1240 level is now key support for Gold going forward and today I will be a small buyer from 1245/1250 with a 1235 stop.
Silver Rolling Contract
No change as I am still long from 18.80 with the same 18.45 stop. At least Silver closed back over 19.00 in New York last Night.
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