The key paragraph in the Minutes released last evening of the Fed’s January Meeting reads as follows: ‘Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalisation had inclined them toward keeping the Federal Funds Rate at its effective lower bound for a longer time’.
In FOMC speak, many is taken to mean a majority, and these words have had the effect of pushing implied money market yields in the fourth Quarter of 2015 down by about 5bps on average, and by as much as 10bps further out along the shorter end of the yield curve. Longer dated yields have also dropped with the 10 year back down to 2.06% from 2.15% yesterday morning.
Together with FOMC comments about the Dollar, the impact on FX markets has been equally electric. The Dollar Index immediately dropped 0.5% while the Euro which was trading at 1.1330 before the announcement rose back above 1.14 where it is still currently trading. Sterling was the largest mover yesterday as it rose 0.7% helped by an unexpected drop in UK Unemployment Rate to 5.7% from 5.8% last month, together with a rise in Average Weekly Earnings to 2.1% from 1.8% Y/Y and Minutes of the Bank of England’s February MPC Meeting. Though the latter showed a unanimous 9-0 vote for unchanged policy, the beginnings of a fresh 3-way split on the Committee are evident, with two of the nine members suggesting that rates might need to rise sooner rather than later.
Ahead of yesterday’s FOMC Minutes most markets, whether equities, bonds or currencies, had taken another set of downside US data surprises in their stride. Industrial Production came in a -0.4% versus -0.2% expected while Housing Starts were also lower as was PPI at -0.3%. The weak PPI was blamed on lower Oil prices, which fell nearly 4% yesterday after its recent run higher.
This morning on the economic front we have the ECB Current Account and UK CBI Trends Total Orders at 9.00 am and 1.00 pm respectively. At 1.30 pm the US will release its latest Weekly Jobless Claims. Finally at 3.00 pm we have the Philly Fed Business Outlook and Euro-Zone Consumer Confidence.
March S&P 500
My short 2098 S&P position worked out very well yesterday as after the US released its weaker than expected economic data the market had a nice sell-off which enabled me to cover this position at 2090 and I am now flat. The Investors Intelligence Advisors Weekly Survey has just been released and again shows how sentiment is again at extreme levels at 81% bulls thus showing that we have more than four times as many bullish advisors as there are bearish. This ratio is now at its highest level since 1987 despite the fact that most economic data been reported has been weaker than expected over the last two months. The level of bullish advisors gives you one very good example of the degree of topping process that the US markets are putting in and I have no doubt that this will end in a very nasty fashion.
Today I will again be a small seller on any rally higher to 2098/2103 with a 2107 stop. Again if I am taken short and subsequently stopped out of this trade, I will use my 5 handle rule to go short again with a stop above whatever new high is printed. I will also be a small buyer on a dip lower to 2078/2083 with a 2074 stop. Remember a break and close below 2065/2072 will be very bearish.
EUR/USD
The Euro plan worked out very well as shortly after I posted the Euro fell on more bearish news out of Greece. The Euro eventually traded lower to my 1.1350 buy level and after a nice rally after the FOMC Minutes were released I have covered this position at 1.1400 and I am now flat. Today I will again be a small buyer on any dip lower to 1.1340/1.1380 with a 1.1315 stop.
US Dollar Index
My short 94.50 Dollar Index position has also worked out well over the last 24 hours. This morning the Index is trading at 94.05 and I have covered my positioned here which now leaves me flat the market. Today I will again be a small seller on any rally back to 94.45/94.75 with a 95.10 stop.
March DAX
No change as I am still a small buyer on any further dip lower to 10795/10835 with a 10750 stop which is just below last Tuesday’s 10760 low. The key support for the DAX is still from 10660/10700 and as long as we stay over this key level the DAX is bullish, but a break and close below here that is sustained could be extremely bearish. Today I will also lower my sell level to 11020/11050 with a wider 11110 stop.
March FTSE
Very late after I posted the FTSE eventually traded lower to my 6835 buy level. I am still long and I will leave my stop the same at 6795. I will also lower my sell level to 6895/6915 with a 6930 stop.
Dow Rolling Contract
No change as I am still flat the Dow as the market just missed my 18100 sell-level after I posted yesterday. It is interesting the Dow so far has not been able to make a new high while the S&P 500 has and if this continues it is very possible that we will then have negative divergence in the market which potentially could be very bearish. It is very difficult for me to buy the Dow especially when we have had the seven Hindenburg Omen signals confirmed so far in 2015. However the price action is still positive after the near 1000 point rally over the past two weeks. Today I will lower my sell level slightly to 18025/18085 with an 18125 stop which is just above the all-time high at 18103 which occurred on December 26th 2014.
March BUND
No change as I am still a small seller from 158.85/159.15 with the same 159.38 stop.
Gold Rolling Contract
Unfortunately Gold has not been my friend over the past week as I had my stop too near at 1199 on my 1206 long position which got stopped out just before the FOMC Minutes were released. After the FOMC released its Minutes I went long again at 1208 and I will leave my stop at 1195 on this position which is just below the 1197 low print from yesterday.
Silver Rolling Contract
Silver just missed my 16.20 buy level with a 16.26 low yesterday and I am still flat. I still like Silver and today I will raise my buy level to 16.10/16.40 with a tight 15.70 stop.
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