The US Dollar ended last week the same way it began – on the rise, with the US Dollar Index hitting the highest level in 6 years. The Dollar made some further gains against the Yen and held its gains against the Euro whilst the AUD/USD continued on the back foot into the lower 97’s. The Wall Street Journal ‘Fed Watcher’, Hilsenrath, said on Friday, after the market closed, that the the Fed is in no hurry to dial back QE – this is a good reason to be more defensive on the Dollar today.
For the FX markets, I will be keeping a close eye on positioning as the latest IMM data shows speculative positioning in the Dollar as becoming stretched and at its highest in the past year. Friday’s data out of the US supported the Dollar and Bond Yields with the University of Michigan Consumer Sentiment reading for May coming in at 83.7, well above expectations, and its highest reading since July 2007. In the UK, the Governor of the Bank Of England, Mervyn King (soon to be leaving his post), is still pushing for more QE saying that the UK can do more to boost the recovery. He also said that he is still very concerned with the Euro-Zone.
Today is a much quieter day for economic data with no news of any real consequence out of the the UK or the Euro-Zone. In the US, we have the Chicago Fed National Activity Index whilst the Fed’s Charles Evans speaks on the economy in Chicago later this afternoon.
June S&P 500
The S&P has now closed up 20 out of the last 26 weeks since the market made its low on November 16th 2012. Bill Gross who runs PIMCO, which is the largest Bond Fund in the US, said during the week that he had never seen investors reach so high for prices giving so low a return and never have they stooped so low for so much risk. This to me sums up how mad the markets have become over the past two months. As I said last week when this market tops it will end badly however as the sentiment readings, which I have constantly referred to, show nobody is expecting a decline any time soon. However I believe that the decline that follows this push higher will be far larger and longer.
The S&P rallied up to my small 1655 short position and I was stopped out at 1660 and I am now flat. Today I will be a more aggressive seller on any rally to 1670/1674 with a 1682 stop. If I am taken short and subsequently stopped out, I will use the ‘five handle (point) rule’ to go short again at a level 5 handles below whatever high is put in, with a stop at just above this high. I will also be a small buyer on any dip to 1648/1652 with a 1645 stop.
Euro/USD
The Euro made a low of 1.2795 on Friday just missing my 1.2780 buy level before having a small rally. The IMM data shows how stretched this Dollar is and I would expect some sort of a bounce from here. Today I will be a small buyer from 1.2810/1.2840 with a tight 1.2790 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 1.2750 with a 1.2730 stop. I do not want to short the Euro at this time.
June DAX
The Dax rallied up to my 8395 sell level and I took a small gain at 8370 as I was already short the S&P and Bund and because I did want to have too much exposure in the same direction in the market and I am now flat. The Dax broke and closed over the important 8400 resistance level and today I will be a small buyer on any dip to 8360/8390 with a 8335 stop. Given how stretched this market is I am only trading in small size.
June FTSE
The FTSE has broken through and closed above important support and today I will be a small buyer on any dip to 6660/6680 with a 6645 stop. I will also look to sell on any further rally to 6740/6760 with a 6775 stop.
June BUND
The Bund worked out well on Friday as after I posted it traded up to my 145.60 sell level with a 145.74 high. I have taken profit this morning at 145.00 and I am now flat. Today if the Bund rallies back to the 145.60/145.90 area I will be a seller again with a 146.10 stop.
Nasdaq 100
Unfortunately the market stopped me out of my 3015 short position at 3020 and just missed my 3030 sell level and I am still flat. I will leave my sell level the same at 3030/3050 with a 3070 stop. If the Nasdaq breaks 300 I will be a small seller with a 3030 stop, which is just above Friday’s high.
Silver Rolling Contract
I have not mentioned Silver in over two months but I think we are at an interesting juncture. Silver is now down almost 60% from its high made in May 2011 and approaching very important support at the $20/21 area. Today I will be a buyer from 20.90/21.30 with a 19.90 stop.
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