The FOMC meeting was a bit of a mark-to-reality exercise for markets, after perhaps getting a little ahead of itself. This applies both to the intra-day moves and the direction over recent weeks. Earlier in the day, Bond Yields had risen, the US Dollar was up and equities were wavering. Post Fed: US equities are up a fraction, Yields are lower, the US Dollar is lower and GBP is the outperformer.
For anybody following my New Platinum Service it made 255 points yesterday, 195 on Tuesday and 285 last Monday. It generated a total of 600 and 995 p0ints over the two previous weeks respectively.
Indeed, the changes in the FOMC statement were relatively limited, reflecting the reality that the US economy has improved since the weather related slowdown in the first quarter. But that recovery is moderate and there is still work to be done, particularly on incomes and inflation. This event is now a multi-faceted one, with forecasts, dot points and speeches. That means there tends to be something for everyone, no matter your point of view. Thus, it tends to come down to the dot points, which attempt to show where the FOMC members believe the Fed Funds rate will be at the end of each of the next three years. These had to reflect the reality, that given the Fed had not yet started to raise rates, that their prior distribution of ‘dots,’ where some were at 1% for 2015, is extremely unlikely (similarly for the highs of 2016 and ’17). So, while the median forecast for 2015 was unchanged at 0.625%, the distribution was lower and more members seeing only one, or no, hikes this year, not two.
It is this fact that is behind the dovish tone to the market’s response to the FOMC meeting. Two hikes are still possible this year, but as we probably already knew, it is not exactly a given. It appears, that with yields rising in the US, and the curve having steepened, that the market was perhaps a little ahead of itself, the data and now clearly, the Fed. With US 10yr yields hovering around 2.5% for now, this in turn, still supports the USD, but potentially limits its upside (in the absence of an extreme market risk event, aka Greek default). In the rest of the release, the median dot points for 2016 and 2017 were lowered, as the highs were looking pretty unlikely. The economic forecasts for 2015 were lowered, as expected but fractionally higher in the out years.
There were other events yesterday; in the UK BoE minutes showed two members ‘finely balanced’ for the decision to raise interest rates, while the unemployment rate remained steady and earnings were above expectations. That allowed GBP to outperform. The ongoing Greek grumbling continues.
September S&P 500
I have now rolled to the September Contract which trades at an 8 handle discount to the Cash Market.
Yesterday the June plan for the S&P worked very well as literally seconds after the FOMC announcement the market dropped to a 2088 low which enabled me to go long at 2092. Subsequently after the S&P rallied I was able to cover this position at 2098 as outlined in my Platinum Service and I am now flat.
With the June Contract expiring tomorrow I still do not want to be short the market and today I will be a small buyer of the September Contract on any dip to 2076/2081 with a 2071 stop. Again if I am stopped out of any long position I will use my ‘5 Handle Rule’ to go long again with a stop below whatever new low is printed.
EUR/USD
My long 1.1225 Euro position worked well as shortly after the European Markets opened I covered this position at 1.1260 as again outlined to my Platinum Members and I am now flat. It is clear from the Fed’s Statement yesterday that there is little or no chance of more than one rate hike this year and that the US Dollar in my opinion is still too strong. Today I will be a small buyer on any dip to 1.1260/1.1310 with a 1.1230 stop.
September Dollar Index
My short 95.50 Dollar positioned also worked well yesterday as shortly after the European Markets opened the market dropped which enabled me to cover this position at 95.20 and I am now flat. Today I will again be a seller on any rally higher to 95.10/95.40 with a 95.70 stop.
September DAX
Today I have rolled to the September Contract which trades at a small 9 point premium to the Cash Market.
My June plan worked very well yesterday as shortly before lunch the DAX traded lower to my 10980 buy level before having a nice rally after the US Markets opened which enabled me to cover this position at 11040 and I am now flat. The volatility was again extraordinary yesterday as just after I covered my long position the market spiked higher to 11080 before falling 200 points ahead of the FOMC announcement. I still believe that Greece will get some sort of deal and today I will again be a small buyer on any dip lower to 10780/10840 with a 10730 stop. Naturally I do not want to be short the DAX at this time.
September FTSE
I have now rolled to the September Contract which trades at a 53 point discount to the cash market. Today I will be a small buyer on any further dip to 6550/6580 with a 6520 stop.
Shortly after the markets opened yesterday the June Contract traded lower to my 6685 buy level. Early this morning I have just covered this position for a small loss at 6670 and I am now flat.
Dow Rolling Contract
No change as I am still a small buyer on any dip lower to 10770/10820 with a 10720 stop. Once we get the June Expiration tomorrow I will then look to start to fade the market especially with the confirmed Hindenburg Omen on the clock.
Gold Rolling Contract
My long 1178 Gold position worked out very well yesterday as shortly after the FOMC announcement Gold traded higher which enabled me to cover this position at 1186 as outlined in my Platinum Service and I am now flat. Today I will again be a small buyer on any dip lower to 1174/1181 with a tighter 1166 stop.
Silver Rolling Contract
No change as I am still long at 15.95 with the same 15.60 stop.
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