The US Dollar was back in favour on Friday, a quick recovery following last Thursday’s brutal snapback of the Dollar gains seen over the past fortnight. Investors look to be jockeying in to long US Dollar positions ahead of the FOMC decision on Wednesday. US data certainly had nothing to do with the US Dollar’s performance on Friday, with both PPI and University of Michigan Consumer Sentiment disappointing. This took Citibank’s US Economic Surprise Index to -60 which is a fresh three-year low.
US headline PPI printed at -0.5% m/m in February versus +0.3% expected. The core measures were not much better, with ex food and energy coming in at -0.5% versus +0.1% expected. The University of Michigan’s Consumer Sentiment Survey fell from 95.4 to 91.2 in the preliminary reading for March, missing the market’s expectation for a rise to 95.5. UoM noted that rising gasoline prices and the cost of heating homes during the bitterly cold weather contributed to the fall in Consumer Sentiment. However the headline number remains well above the series long term average of 85.1.
Emerging Market currencies bore the brunt of the US Dollar strength, with concerns clearly growing about that a mid-2015 lift off in US Rates would spell for US Dollar denominated debt across the EM space. The Brazilian Real was particularly hard hit, closing down 2.5% to its weakest level since April 2003. A tumultuous political environment in Brazil has not helped.
Overnight US Officials were quoted as saying that they were not too worried by the recent surge in the Dollar. Treasury Secretary Lew has repeated the mantra that a strong Dollar is in the US ‘s best interest, while Fed Vice-Chairman Stanley Fisher said it was a sign of US economic might.
In other news Oil prices continued to get slammed on Friday with WTI falling a cool 4.7% to $44.8 and is now just $1.2 shy of the late January post-GFC low. The IEA’s Monthly Report noted that US stocks may soon test storage capacity limits, which would inevitably lead to renewed price weakness, which in turn could trigger the supply cuts that have so far remained elusive.
This morning on the economic front we again have no data of note due from the Euro-Zone or the UK. At 12.30 pm we have US Empire Manufacturing. This is followed by US Industrial Production and the NAHB Housing Market Index at 1.15 pm and 2.00 pm respectively. Finally this evening at 8.00 pm we have Net Long-Term TIC Flows.
March S&P 500
Shortly after I posted on Friday the S&P started to get hit hard to the downside with the market eventually trading lower to my 2058 buy level before stopping me out of this position at 2051. Thankfully my ‘Five Handle Rule’ worked well as after I was stopped out of the above position the S&P made a new low of 2040 which saw me go long again at 2045. The S&P spiked to a 2056 high which enabled me to cover this position at 2054 and I am now flat. The fact that we have the March Futures Contract expiring on Friday and the FOMC Meeting/ Yellen press conference on Wednesday means that I do not want to be short the market this week. Today I will again be a small buyer on any dip lower to 2042/2048 with a 2037 stop which is just below last Friday’s low print. If I am taken long and subsequently stopped out of this position I will again use my ‘Five Handle Rule’ to go long again with a stop below whatever new low is printed. The market has still left an ‘Open Gap’ from last /Monday/Tuesday at 2068/2077 and I still expect the market to at least test this gap. Presently I do not want to be short the market at this time.
EUR/USD
The Euro plan worked well on Friday as shortly after lunch the Euro got hit hard which enabled me to go long at 1.0490. This morning the Euro is opening higher and this has enabled me to cover this position at 1.0530 and I am now flat. Today I will again be a small buyer on any further dip to 1.0470/1.0500 with a 1.0445 stop. Given how oversold and under-loved the Euro is, I do not want to be short the Euro at this time.
June US Dollar Index
Thankfully I lowered my stop on my latest 100.10 short Dollar position which got triggered on Friday at 100.40 and I am now flat. The Daily Sentiment Index reading for the Dollar continues to trade at multi-year highs and today I will again look to go short on any spike higher to 100.60/101.00 with a 101.30 stop.
March DAX
The relentless move higher in the DAX continues as the DAX closed at yet another record high. I have to respect the fact that the DAX broke and closed over the previous strong resistance at 11820 and this latest pivot point should act as strong support for the DAX. Today I will raise my buy level to 11840/11900 with a tight 11790 stop. My only interest in looking to go short the DAX again is only if we break and close back below 11800.
March FTSE
My short 6755 FTSE position worked out well on Friday as shortly after I posted the market got hit hard which enabled me to cover this position at 6715 and I am now flat. It is incredible to see that the DAX/FTSE spread has now widened out to over 5200 points this morning which just shows how much the FTSE is struggling. Today I will be a small buyer from 6730/6760 with a tight 6695 stop. A break and close over 6800 will be short-term positive.
Dow Rolling Contract
Last Friday the market generated another Hindenburg Omen and if we get a second one within the next thirty days, it will mean that we will have had three confirmed HO’s since last December. Unfortunately after I posted on Friday and after the Dow traded lower to my 17780 buy level I was very quickly stopped out of this trade near the lows of the day at 17720 and I am now flat which is very frustrating when you see the market trading at 17800 this morning. The fact that we have the combination of the FOMC on Wednesday and the Expiration of Friday I do not want to be short the Dow this week. Today I will again try to go long again on any dip lower to 17690/17740 with a 17650 stop.
June BUND
I am still flat the Bund and today I will lower my sell level slightly to 158.15/158.40 with a 158.60 stop.
Gold Rolling Contract
Gold just missed my 1151 buy level on Friday before trading higher and I am still flat. Today I will raise my buy level slightly to 1146/1154 with a 1139 stop.
Silver Rolling Contract
No change as I am still long from earlier this month at 15.75 with the same 14.90 stop.
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