US Dollar strength continues to be the dominant theme for markets in the New Year. After some stability in the Dollar Index between Christmas and New Year it rose from 90.20 to 91.70 this morning and is now at its highest level since 2005. This was despite some weaker than expected US data. The December US ISM Manufacturing Index fell over 3 points to 555 from 58.7 in November. Production and new orders both fell sharply from previously very elevated levels but the ISM Headline Index at 55.5 was still the fifth highest monthly reading in 2014 and still shows the US economy is in very good shape.
Consequently, the positive outlook for the US economy continues to weigh on other currencies. The Euro fell from 1.2100 to 1.2000 on Friday and opened below 1.1900 last night due to the stronger Dollar but not helped by further warnings from ECB President Dragi, in a German newspaper, about the threat of deflation. Meanwhile the Euro-Zone Manufacturing PMI rose slightly in December to 50.8 from 50.6 while German Manufacturing PMI was unchanged at 51.2.
Sterling was hit hard on Friday after the December UK Manufacturing PMI fell from 53.3 to 52.5 versus 53.6 expected. Cable fell almost 3 big figures from 1.5550 to 1.5280 on this news. Stocks closed flat but are opening weaker this morning on the back of the weak Oil market with WTI now below $52/barrel which is more than 50% below its 2014 highs.
Today is very quiet on the economic front with the only data of note being the German CPI at 1.00 pm. However the rest of the week will see a lot of economic releases.
March S&P 500
The S&P has indeed run into a ‘wall of resistance’ at the start of trading for the New Year with the market now 50 handles lower since its 2089 high made last Monday. This move lower is despite the fact that we are in the seasonally strong time for Equity markets. After I posted on Friday the S&P just missed my 2070 sell level with a 2067 high before getting slammed in the last 15 minutes of trading. It has left a substantial ‘Open Gap’ from the last Fed Meeting In December, from 2007/2029, which I would expect to be filled over the coming days. Resistance today comes in at 2053/2058 and I will be a small seller in this area with a 2062 stop. If I am taken short and subsequently stopped out of any short position I will use my ‘5 handle rule’ to go short again with a stop above whatever new high is put in. I will also be a buyer on any dip to this ‘Open Gap’ with a buy level from 2015/2023. I will leave a wider 2005 stop on any long position.
Euro/USD
The Euro opened a lot lower last night which enabled me to go long at 1.1935. I am still long and I will leave a 1.1895 stop on this position. Sentiment towards the Euro is now at extreme levels with the Daily Sentiment Index printing below 10% bulls for ten consecutive days which is the longest streak in 13 years. Once the Euro finally finds a low, prices should trace out a multi-month rally.
US Dollar Index
Thankfully I decided to stay out of the Dollar Index on Friday as just like the Euro, sentiment towards the Dollar is now at 14 year highs.The Dollar is trading at the top of its Bollinger Band and Williams Index and for these reasons I have gone short the Dollar again at 91.70 with a 92.10 stop.The next major resistance for the Dollar Index is the 2005 high at 92.63.
March DAX
The Dax is trying to hold in on the back of ECB President Dragi’s comments about buying Sovereign Bonds to fight deflation. With periphery Bond Yields again making new lows this morning I find it very difficult to believe that the ECB will buy these bonds which offer little or no return especially considering the risk involved. Today I will leave my sell level the same at 9850/9900 with a 9930 stop. I still do not want to be long the Dax at this time.
March FTSE
Late on Friday the FTSE traded lower to my 6475 buy level. I am still long and I will leave my stop the same at 6440 which is just below the overnight low. I will still be a small seller on any further rally to 6560/6590 with a tight 6610 stop.
Dow Rolling Contract
I am still flat the Dow and today I will lower me sell level slightly to 17870/17920 with a 17960 stop. I still do not want to be long the market at this time.
March BUND
After I posted on Friday the Bund again started to rally on Dragi’s comments and eventually traded higher to my 156.35 sell level. I am still short and I will leave my stop the same at at tight 156.60. If I am taken out of this short position I will be a more aggressive seller in front of 156.90 with a 157.20 stop.
Gold Rolling Contract
Gold had a wild trading session on Friday as the market made a new low at 1166 before reversing quickly and traded higher in the close. Unfortunately I was stopped out of my 1185 long position at 1175 and I am now flat. I still believe that Gold is on the verge of major move higher especially with risk rising globally. Today I will again be a small buyer from 1183/1190 with a wider 1165 stop which is just below last Friday’s low.
Silver Rolling Contract
Still no change as I am still long at 15.80 with the same 15.45 stop.
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