The FOMC made no change to its forward guidance retaining its line that the Fed Funds Rate will remain low ‘for a considerable time’ after QE ends. They remain quite dovish on the labour market and still see a ‘significant under-utilization of labour resources’ although they did acknowledge that labour market conditions had improved somewhat since June.
Whilst the Fed did not change its key wording, an increasing majority still see rates starting to rise within the next 15 months. 14 Fed Members expect the first rate rise in 2015, 1 expects the rise this year and 2 expect it in 2016. The median Fed Funds forecast has therefore been revised higher – now 1.375% for end 2015, up from 1.13% and 2.875% at end 2016, which is up from 2.50%. In addition, the first projections for end 2017 show a median of 3.75% which is well above the market’s pricing of around 2.95%.
Otherwise the FOMC press release contained very few changes at all with the only other notable one being the growth assessment where they see it ‘expanding at a moderate pace’. There were two dissenters this time namely Plosser (again ) and Fisher with both of them objecting to the stated forward guidance and believing a rate rise will be required earlier than what is being suggested by the FOMC’s guidance. On QE the Fed tapered it by a further $10 billion and confirmed that the remaining $15 billion will be removed at the next meeting in October.
The upward revisions to the rate outlook led to further strengthening of the US Dollar with the Dollar Index rising to 84.75 after the announcement. Equity markets traded higher after the FOMC but ran out of steam and were little changed compared to their pre-FOMC levels whilst the Dollar/Yen rose over 108.00 for the first time since September 2009.
Meanwhile the Bank of England again voted 7-2 to keep the Bank Rate unchanged at the September Meeting. UK labour data was solid with 74k jobs created in the 3 months to July as the Unemployment Rate eased to 6.2%, which is the lowest level since November 2008.
This morning on the economic front we have UK Retail Sales at 9.30 am. This is followed at 1.30 pm by US Weekly Jobless Claims and Housing Starts/ Building Permits. This is followed at 3 pm by the Philly Fed Business Outlook. The Scottish Independence Referendum takes place today with the polls not closing until 10 pm and soon after polling ends we will get the first exit polls results.
December S&P 500
As expected the S&P had some wild moves as soon as the FOMC Statement was released with the market trading in a 20 handle range in the aftermath. The market just missed my 1983 buy level with a 1983.25 low before trading higher to my 2002 sell level with a 2003.25 high. After the market traded at these high levels for a while the S&P eventually sold off into the close which enabled me to cover this position at 1995 and I am now flat. With tomorrow being the expiration for all the September Contracts and the ‘Open Interest’ still very high for these Contracts I am still reluctant to be short this market.
Today I will raise my buy level to 1986/1991 with a 1982 low which is just below yesterday’s spike lower. I will also be a small seller on any rally higher to 2005/2010 with a 2013 stop.
Euro/USD
The Euro also traded in a large range after the FOMC Statement with the market initially spiking to 1.2975 before being hit hard to the downside which saw me going long at 1.2910 only to be stopped out of this position for a small loss at 1.2870. It subsequently made a new low at 12830 before rebounding over night. Given how oversold the Euro is trading I have bought the market again this morning at 1.2870 in small size and I will leave my stop at 1.2825 which is just below yesterday’s low.
US Dollar Index
The Dollar Index spiked higher soon after the FOMC announcement with the Index finally trading up to my 84.80 sell level. I am still short as the Index is very overbought and I will leave my stop the same at 85.20.
December DAX
Surprisingly the Dax traded in a very narrow range yesterday and I am still flat. Given that QE has started in Europe I do not want to be short the Dax but at the same time I do not want to chase the market higher preferring instead to buy a dip if it occurs. For this reason I will leave my buy level the same at 9580/9610 with a 9555 stop. Again if I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 9470 with a 9435 stop.
December FTSE
The FTSE finally traded down to my 6750 buy level yesterday after the FOMC announcement. I am still long as I am expecting the market to rally ahead of tonight’s Scottish Referendum results. I will not risk to much on this trade and for this reason I will raise my stop to 6725.
Dow Rolling Contract
The Dow plan also worked well yesterday as the market rallied up to my 17210 sell level and following a nice sell-off into the close I was able to cover this position at 17160 and I am now flat. In the process the Dow finally broke and closed over the July high at 17150. With the Contract expiration tomorrow I am reluctant to be short and today I will raise my buy level to 17090/17130 with a tight 17070 stop. Despite me being very nervous of these stock markets I do not want to be short the Dow today.
December BUND
This morning the Bund traded down to my 148.00 buy level. I am still long and as I do not want to risk to many points on this position I will raise my stop to 147.75.
Gold Rolling Contract
I was lucky with my long 1229 Gold position yesterday as the market had a nice spike higher following the FOMC Statement which enabled me to cover this position at 1237 and I am now flat. Gold subsequently hit a low of 1216 last night as sentiment continues to be extremely negative against the precious metal. The next key support is from 1180/1200 which is where we had the ‘Double Bottom’ December 31 low and June low in 2013.
Today, given how oversold Gold is trading, I will again look to buy the market on any dip to 1210/1216 with a 1207 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer from 1185/1200 with a 1175 stop.
Silver Rolling Contract
No change as I am still long at 18.60 with the same 18.25 stop.
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