Equity markets made small gains yesterday after the German Constitutional Court cleared the way for ratification of the ESM after it ruled that Germany’s participation in the ESM did not violate the German Constitution. However the Court did impose a cap on Germany’s contribution of €190billion. This equates to 27% of Germans weighted share of the the combined ESM and ESRF and cannot be increased in the future without the approval of the German Parliament. Spanish 10 Year Yields closed the day 6 basis points lower at 5.63%. Late yesterday, Apple unveiled its new iPhone 5, giving its shares a 1.4% boost late in the session.
Today, all eyes will be on the Federal Reserve policy decision which is due earlier than usual at 5.30pm and this will be followed by a press conference with Chairman Bernanke. Whilst markets are hoping to see an announcement of another large asset purchase program, the FOMC is also likely to keep the Fed Funds Rate at extremely low levels from late 2014 to sometime in 2015. Later this morning we have Labour Costs from the Euro-Zone and the Initial Jobless Claims from the US at 1.30pm.
Sept S&P 500
I went short the S&P yesterday morning at 1438 and covered my position late on at 1434 – I am now flat. I want to be flat going into the FOMC Announcement but I will leave an order to go short somewhere between 1440/1450 as I believe that an awful lot of good news is priced into this evening’s announcement. I will still look to go long from 1423/1427 with a 1418 stop.If we break and close below 1420 the market will be bearish and will have put in a medium term top. We still have three open gaps below the current market levels, going back to the August 1st level of 1362.
EURO/USD
No change as the Euro continue to be overbought. I will still look to go short from 1.2960/1.3000 with a 1.3020 stop. I only want to go long if we get a dip back to the 1.2760/1.2800 with a 1.2740 stop. I am only trading in small size given the expected volatility later.
Sept DAX
The Dax worked really well as my 7380 order was filled on The German Court ruling and I took profit late on at 7330 as, once again, I want to be flat going into the FOMC. The Dax is like the Euro extremely overbought and today I will look to go short on any rally to the 7410/7440 with a 7460 stop. As I said yesterday, I only want to go long if we get a dip to the 7200/7250 with a 7185 stop. Again I am only trading in small size given the volatility.
Dec BUND
The Bund just missed my 140.40 sell level after I posted yesterday and then fell over a 100 points to my 139.45 support. I went long at 139.45 and as we are very oversold I will leave a breakeven stop on this position and I will look to take profit and go short from 140.20/140.50 with a tight 140.60 stop on any short position.
Sept FTSE
The FTSE continues to underperform and I will look to go long from 5740/5760 with a 5720 stop. Despite the FTSE looking and trading very heavy I do not want to be short at this time.
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