The ECB came to the party yesterday announcing a new program to buy the bonds of countries whose bond markets are in trouble. These will be called Outright Monetary Transactions. To gain access to this program countries will have to sign up to new precautionary rescue program called the Entrance Conditions Credit Line. The IMF will be involved in the ECCL, which is the sting in the tail. The ECB also announced a widening of the assets the banks can use as collateral in raising finance, this being a nod to Spanish banks lobbying. Countries under a full bailout, Greece, Portugal and Ireland, cannot get access to the OMT until they regain bond market access. The ECB also left rates unchanged.
In the US, the Weekly Jobless No’s and the ADP No’s both came in better than expected as did the ISM Services Index at 53.7 versus 52.5 last month. All eyes today will be on the Non Farm Payrolls which are expected to increase by 130k. Given the better ADP No’s, I think we will get a better Payroll number.
Sept S&P 500
The Equity markets having been so quiet for the last four weeks suddenly exploded on the back of the news from the ECB and the better Economic releases from the US. The break of the important 1420/1425 resistance is key and this level now becomes major support as I expect over time for the S&P to challenge the 1500 level. I went short at 1424 and was stopped out for a small loss at 1427 and I am now flat. Although we are overbought I do not want to have a position ahead of the Non Farm Payrolls and if we rally on a better number I will look to go short from 1448/1453 with a 1455 stop. If we get a weaker than expected payroll I will be a buyer from 1425/1430 with a wider 1419 stop as I want to give this 1420/1425 a chance to assert itself.
Sept DAX
Before the ECB meeting, the DAX traded up to my 7080 sell area and then fell 40 pips and I was lucky enough to take profit as I did not want a position into the news event. I am still flat and I am amazed at how strong the market is. We are at the top of the Bollinger Band and Williams Index but I don’t want to have a trade ahead of Non Farm Payrolls. If we rally further I will be a small seller from 7230/7270 with a 7290 stop. If I am taken short I will look to cover from 7150/7180 and I will be an aggressive buyer on any dip back to the major 7110/7130 level with a 7095 stop on any long taken here.
EURO/USD
The Euro just missed my 1.2550 buy area and I am still flat. Today I will raise my sell area to the 1.2710/1.2740 area with a 1.2760 stop. Again a closing break over 1.2750 will be very bullish and should lead to a test of the 1.3000 area over the coming weeks. If I am taken short I will look to take profit in front of 1.2640.
USD/JPY
The USD/JPY rallied as expected I was able to take profit yesterday at 7895 on my 7830 long from earlier in the week. I still believe this currency pair is going to rally and I will look to reset my long on any dip to the 7850/7875 level.
Sept FTSE
The move in the FTSE just shows how important and powerful these Bollinger Bands and Williams Index are when the setup is in place. The FTSE rose 170 points since yesterday morning. Today I will look to get long on any dip to the 5750 area with a tight 5730 stop as I believe the FTSE will trade up to the 6000 area over the coming weeks as risk appetite returns.
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