Equity markets posted small gains yesterday supported by solid US economic data whilst the Bank of England and the ECB kept policy unchanged. Equities got a boost from the ADP Employment data which was in line with expectations coming in at +176k. There was also a strong increase in the US Non-Manufacturing ISM which rose to an 8 year high of 58.6 in August from 56.0 in July whilst Jobless Claims fell 9k to 323k continuing the downward trend over the past two months. The US data over the past two days would suggest that the start of QE tapering at the next FOMC meeting is becoming increasingly likely but today’s Payroll Data is crucial to the Fed’s decision.
The solid US data also saw the Dollar stronger yesterday whilst 10-Year Bond yields made a fresh cycle high of 3%. In Europe there was no change of policy but Dragi’s dovishness at his press conference saw the Euro plunge. He repeated that rates could remain on hold for a while and he also implied that a rate cut was discussed at the ECB meeting. The Bank of England also kept interest rates and its asset purchases unchanged.
This morning on the economic front we have UK and German Industrial Production whilst at 1.30 pm we have Non Farm Payrolls from the US and the Unemployment Rate. Later this afternoon the Fed’s, George will speak on the economy.
September S&P 500
Just as I posted yesterday morning the S&P was trading at my 1652 buy level and after a nice rally on the stronger US Economic data I was able to cover this position at 1658 and I am now flat. Today Is Non Farm Payroll day and besides the FOMC Meeting on September 18th this is the most important data of the month. I am going to stay flat until this data is released and if we get a weaker number I will be a buyer on any dip to 1644/1650 with a 1639 stop whilst if we get a stronger print I will be a small seller at 1670/1675 with a 1678 stop which will be in the Gap that I have been talking about over the last week. Even though it is September which is traditionally the weakest month of the year for equities I fancy this market to trade higher ahead of the FOMC Meeting in ten days.
Euro/USD
Dragi certainly sent the Euro lower at his press conference and it closed below the 1.3140 support level. I bought the Euro at 1.3145 in small and as we are so oversold I am going to give the Euro one more day to rally and I will leave my stop the same at 1.3095.
September DAX
Similar to the S&P above, the Dax was trading at my 8190 buy level when I posted yesterday morning as the market traded down to a 8165 low before having a nice rally and I was able to cover this position this morning at 8240 and I am now flat. I am going to stay flat until after the US Payroll data is released and if we get a weak report I will be a small buyer on any dip to 8160/8190 with a 8140 stop. If the Dax manages to break 8250 and trade over this level for 1 hour I will also be a small buyer with a 8225 stop.
September FTSE
The FTSE was already trading through my buy level and stop when I posted yesterday so no trade was taken and I am still flat. The FTSE continues to whipsaw between the 6450 – 6540 range and we need a break of one of these levels to get the next direction. I still fancy the market to trade higher and if the FTSE can break 6550 and hold over this level I will be a small buyer with a 6520 stop.
December 10 year Treasury Bond
This market dropped down to my 122.30 buy level and I am still long as the market is now in my medium term buy zone. I am going to stay long and given it is Non Farm Payroll day I will lower my stop to 121.75.
December BUND
The Bund has now rolled to the December Contract from September with a discount of 195 points. This contract has key support at 137.55/137.75 and a close below 137.50 for two days would have serious bearish consequences. The Bund is extremely oversold and I do not expect the Bund to break this level before we have a meaningful rally first. Today I will be a small buyer from 137.30/137.60 with a 137.10 stop.
Gold Rolling Contract
Gold had a nasty sell off yesterday and the market dropped down to my 1375 buy level. Given that it is Non Farm Payroll day I have covered this position for a small loss this morning at 1370 and I am going to stand aside and stay flat.
Silver Rolling Contract
No change as I am still a small buyer on any dip to 22.60/22.90 with a 22.40 stop.
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