If Thursday saw much of Wednesday night’s post FOMC market gyrations almost fully reversed, then Friday marked a ‘reversal of the reversal’ in most asset classes. The US Dollar was back down if not quite to its immediate post-FOMC extremes, equities bounced back strongly and Treasury Yields fell back once more. There was not a headline news driving these moves, though FOMC Member comments tended to affirm immediate post-FOMC suggestions that Dollar strength had caused the Fed to blink and that a pull-back from extreme long Dollar speculative positioning was therefore warranted.
Dennis Lockhart of the Atlanta Fed said he had ‘raised his level of concerns about a strong Dollar’ due to its impact on net exports and growth, but added that it was ‘not a game changer’, with a first rate rise warranted in June, July or September. Meanwhile Charles Evans from the Chicago Fed said that a strong US Dollar was reason for the Fed’s growth downgrade last week, saying, ‘it makes sense that the strong Dollar was going to lead to a little bit of softening, probably transitory, for net exports and also for imported goods prices in keeping inflation down a little bit’. In a co-authored paper published last Thursday evening, he argued that case for a later lift-off due to the uncertainties inherent with policy at the zero lower bound.
At the same time US Treasury Secretary Jack Lew said on Friday that ‘A strong Dollar, that my predecessors have joined me in saying, is a good thing. It is good for America, if it’s the result of a strong economy, it’s good for the US and it is good for the world’.
US equity Indices ended uniformly higher with the S&P 500 closing up just shy of 1% following on from strong gains in European Bourses. The VIX lost a point, -1.05 to 13.02. In Treasuries the 10 Year fell another 4bps to 1.93%. Commodity prices were mostly higher thanks to the softer Dollar with Gold up $25 to 1185.
Today is another very quiet day for economic data. We have no data of note due this morning. At 2.00 pm the US will release its latest Existing Home Sales. Finally at 3.00 pm we have Euro-Zone Consumer Confidence.
June S&P 500
The most important lesson from last week is never to be short in a week when we have the Quarterly Expiration and especially one which also has an FOMC Meeting. As I mentioned in the past whatever low is put in on the Thursday/Friday in the week before Expiration tends to be the low and this certainly proved to be the case as last Friday week the low of the S&P was at 2034 in the June Contract before rallying to last Friday’s high at 2106. Thankfully we were not short on Friday as the market just missed my buy level before having this 20 handle rally and I am still flat. The key level for the June Contract is still from 2076/2081 and as long as we can hold this now key support the market is fine, but a break and close below here will see the market start to accelerate lower again. This morning the S&P is trading lower on the back of the DAX getting slammed again and today I will raise my buy level slightly to 2082/2088 with a wider 2074 stop. Given the positive price action I still do not want to be short the market at this time.
EUR/USD
Unfortunately despite me been bullish of the Euro the market just missed my buy level on Friday before having this huge rally after I posted and I am still flat. I have to respect the fact that the Euro managed to break and close over the now key support at 1.0740/1.0780 and today I will be a small buyer in this range with a 1.0695 stop. I still do not want to be short the Euro at this time.
June Dollar Index
My short 99.35 Dollar position worked out very well on Friday as shortly after I posted the Dollar was trading higher than my sell level before literally getting crushed in the afternoon which enabled me to cover this position at 9800 and I am now flat. There is no doubt that the 100 level for the Dollar is very strong resistance and it will take some decent positive news how of the US to break and close back above this level. Today I will again be a small seller on any further rally to 98.70/99.00 with a 99.40 stop.
June DAX
This morning the DAX is following the Euro lower on comments from ECB Member Noyer who said that the ECB Balance Sheet was going to expand a lot as a result of QE. The key level to watch for the DAX is at 11800 and as long as we stay over this level, there is every chance that the DAX can trade as high as 13100/14000 over the coming months. Today I will still be a small buyer on any further dip to 11850/11910 with an 11780 stop. Given the volatility I have to trade in smaller size with a wider stop.
June FTSE
Last Friday was an historic day for the FTSE as the cash market closed over 7000 for the first time. I am still flat the June Contract and today I will raise my buy level slightly to 6880/6920 with a 6855 stop.
Dow Rolling Contract
The Dow plan also worked well on Friday as the market traded higher to my 18120 sell level shortly after lunch before having a nice sell-off which enabled me to cover this position at 18060 and I am now flat. Despite the positive price action in the Dow over the last week I am still very worried about this market going forward especially with the fact that we have three confirmed Hindenburg Omen’s that are live at this time. Today I will again be a small seller on any further rally to 18140/18190 with a 18230 stop.
June BUND
No change as I am still short at 158.90 with the same 159.30 stop. Again if I am stopped out of this short position I will be a more aggressive seller in front of 159.50 with a 159.80 stop.
Gold Rolling Contract
Gold has continued to rally without me been able to get a long position on board and I am still flat. Today I will raise my buy level to 1165/1175 with an 1158 stop which is just below last Thursday’s low print.
Silver Rolling Contract
Unfortunately I covered my long Silver position too early last week and I am still flat. I still like Silver as I still believe that long term Silver is great value under $20. Today I will raise my buy level to 16.30./16.60 with a 15.80 stop.
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