There were no surprises from the US Federal Reserve at the FOMC Meeting. The Fed made no changes to the $85 billion/month Asset Purchase Program but did say that it was prepared to increase or reduce the pace of its purchases as the outlook for the labour market and Inflation changes. Given the recent softness in the data it allows the Fed some scope to be more aggressive in the short term if required. The Feds statement was otherwise little changed from the March commentary. The bigger moves came earlier in the session as markets were weighed down by some weak economic data – US ADP Employment rose just 119k in April versus 150k expected whilst the ISM Manufacturing fell to 50.7 in April from 51.3 in March.
On the currency front Sterling continued to strengthen after the UK Manufacturing PMI came in at 49.8 versus 48.5 expected and, although still contracting, Manufacturing Activity is creeping back toward expansion territory (over 50.0). In Europe most markets were closed for the May Day Holiday and today the ECB is widely expected to cut its rates by 25 basis points.
This morning, ahead of the ECB meeting, we have UK PMI Construction and Euro-Zone (including France and Germany) PMI Manufacturing. At 1.30 pm, after the ECB announcement, we have President Dragi’s Press Conference. At the same time the US releases its Weekly Jobless Claims and Trade Balance. We also have the New York ISM ahead of Non Farm Payrolls tomorrow.
June S&P 500
The mantra of ‘sell in May and go away’ started with a bang yesterday as the S&P lost 1%. Today and tomorrow are huge days for the markets with the ECB rate decision at 12.45 pm and Non Farm Payrolls tomorrow. Yesterday’s weak ADP Employment Report is a worry for tomorrow but with the Fed continuing its $85 billion Monthly Asset Purchase Program, it makes it very difficult to be short the market. 1570 is key short term support and as long as we can stay over this level the market is fine. Yesterday the S&P dropped down to my 1583.5 buy level and I took a small gain at 1588 and I wanted to be flat ahead of the FOMC Meeting. I am still flat today I will look to buy the market on any dip to 1571/1575 with a 1567 stop. I do not want to be short the market ahead of tomorrows key Payroll data unless we rally back to the 1593/1597 area where I will go short with a 1601 stop.
Euro/USD
The Euro worked well yesterday as we traded up to my 1.3220 sell level before having a nice drop this morning. As today is ECB day and the Euro has tended to rally after Dragi’s Press conference I have taken profit at 1.3160 and I am now flat. I do not want to be short the Euro today and I will still look to buy the Euro on any dip to 1.3110/1.3130 with a 1.3080 stop. A rate cut is priced into the market and if the ECB do nothing the Euro will continue to rally.
June DAX
The market was closed yesterday and the Dax has opened little changed from Tuesday despite the S&P falling 1%. The Dax has now rallied over 500 points since last week as rate cut fever gathers pace. If the ECB surprise and do nothing today then it should fall. Today I will only trade in small size given the expected volatility and I will look to buy the Dax on any dip to 7810/7850 with a 7770 stop. I will also look to sell the market on any rally to 7995/8020 with a 8040 stop.
June FTSE
The FTSE worked really well yesterday as after I posted we traded up to 6437 before having a nice correction. I went short at 6430 and I took a gain at 6385 and I am now flat. Today I will look to reset my short position on any rally back to 6415/6430 with a 6445 stop. If the FTSE can break and close below 6370 I will also look to go short with a 6395 stop. I do not want to be long at this time.
June Bund
The Bund continues to grind higher as hedge funds and pension seek yield and safety. If the Bund drops back to 14625/14645 I will be a small buyer with a 145.95 stop. I will only look to go short on any further rally to 147.15/147.40 with a 147.60 stop.
Gold Rolling Contract
Gold also worked really well as Gold fell hard in the afternoon. I took profit at 1452 on my 1478 short position from Tuesday and I am now flat. As expected this 1570/1590 is formidable resistance and today I will be a small seller in this area with a 1595 stop. I do not want to be long Gold at this time.
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