As expected, the FOMC confirmed a further reduction of $10 billion in their programme of asset purchases with the monthly purchase pace now running at $55 billion. The Fed also removed the 6.5% threshold for unemployment from its forward guidance, now saying that they will look at a wide range of indicators consistent with its longer-run goals of maximum employment and inflation of 2%.
In her first press conference as the new Fed Chair, Janet Yellen reiterated that next Autumn was the likely timing for ending QE which points to ongoing tapering of around $10 billion at each of the next five meetings until October 30th. Ms Yellen said that the Fed Funds Rate would stay low for a considerable time after QE ends, which she later said might be around six months. Other FOMC Members have also revised their Fed Funds expectation upwards with the latest projections showing a median expectation of 1.0% for the Fed Funds Rate at the end of 2015 and 2.25% at the end of 2016. Last December the medians were 0.75% and 1.75% respectively.
The US Dollar surged on the changed view with the US Dollar Index rising from 79.4 to over 80.0. Markets were seemingly expecting a dovish statement after a run of weather affected soft economic data but this has now being priced out, with US 10 Year Treasury Yields rising to 2.78% from 2.69% before the announcement. The Fed’s economic forecasts for GDP are little changed at 3.1% in 2015 from 3.2% previously whilst the Unemployment Rate forecast has again been revised lower to 5.75% from 5.95%. Meanwhile the UK Budget saw upgrades to growth forecasts which helped Sterling to be the best performing currency yesterday.
This morning on the economic front we have the UK CBI Trends Total Orders at 9.30 am We have no economic news of note from the Euro-Zone whilst at 12.30 pm we have the US Weekly Jobless Claims and Existing Home Sales. This is followed by the US Philly Fed Business Outlook.
June S&P 500
Janet Yellen’s first meeting as the new Fed Chair certainly got off to a flyer as the S&P had one of its wildest trading sessions of the year so far. Nobody expected the Fed to aim to finish QE tapering by the Autumn, with October 30 the likely end date. They have basically ignored the recent weak data by putting it all down to the severe weather that has affected the East Coast so far this year. After the Fed announcement the June Contract sold off to 1854 before rallying back to 1863, ahead of her press conference, before selling off to a low of 1842.5 in one spike before the market rallied back into the close.
It traded down to my 1849 buy level during the press conference with the move so quick that I did not have a chance to put a stop in as we were back trading at my buy level a minute later. I covered this position at 1853 and I am now flat. The S&P still has an open Gap from 1832/1842.50 and I would expect this Gap to be filled over the next few days. The key level for the June contract is still at 1829 and as long as we stay over this level the market will be fine but a break and close below here will be bearish and I will then look to set up a short position.
Today I will be a small buyer on any dip to 1840/1845 with a 1837 stop and if I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 1829 with a 1825 stop. Given that tomorrow is triple witching expiration day for all the March contracts I do not want to be short the market at this time.
Euro/USD
The Euro was hit hard last night after the surprise announcement by the Fed. The market then traded down to my 1.3860 buy level but I was quickly stopped out of this position at 1.3830 and I am now flat. The key support for the Euro is at 1.3780 and as long as we can stay over this level I still like the market but a break and close below here will be very bearish and may mean that the market has finally put in its long awaited top. Today I will be a small buyer on any dip to 1.3790/1.3810 with a 1.3765 stop. I do not want to be short the Euro at this time.
US Dollar Index
Finally we got some upward movement in my long held US Dollar position from 79.45. I covered half my position last night at 80.10 and I will raise my stop on the other half to 79.50. If I am stopped out of the remaining position at 79.50 I will be a more aggressive buyer in front of 79.20 with a 78.80 stop.
June Dax
I have now rolled to the June Contract which in contrast to the S&P is trading at a premium of 20 points over the Dax cash. The Dax is still struggling to break and close over the key 9275 resistance level in the cash market which equates to 9295 in the June Contract and I am still flat. Today I will be a small seller on any rally to 9330/9350 with a 9370 stop which is just above yesterday’s high. I will also be a small buyer on any dip to 9190/9210 with a 9170 stop which is just below last night’s low.
June FTSE
I have also rolled from the March Contract to the June Contract as the former expires tomorrow morning. It has rolled to the June Contract at a very high 60 point discount to the March Contract which makes it very difficult to be short as the Cash and Futures markets have to correlate by the June expiration in 90 days. Today I will be a small buyer of the June contract from 6440/6470 with 6420 stop. Given how oversold the FTSE is trading and the fact that it is so under-perfoming versus the other major indices I do not want to be short the market at this time.
Dow Rolling Contract
The Dow plan worked well last night as, after the Fed announcement, it traded down to my 16250 buy level before having a nice rally before Ms Yellen started her press conference and I was able to cover this position at 16305 and I am now flat. The key level for the Dow going forward is last Friday’s low at 16045 and as long as it can stay over this level the market is fine. The market has bounced back well from the sell-off during the Yellen press conference and today I will be a small buyer on any dip to 16090/16130 with a 16040 stop. I still do not want to be short the Dow with the triple witching expiration tomorrow and the fact that it has a lot of catch up to do in relation to the S&P and the NASDAQ this year.
June BUND
Unfortunately I was stopped out of my long 143.15 position from last Tuesday at 142.85 last night for a small loss and I am now flat. I have to respect the fact that the Bund broke the key 14300 support level so easily and today this 143.00 will now act as strong resistance. For this reason I will be a seller on any rally to 142.90/143.15 with a 143.30 stop. I do not want to be long the Bund at this time
Gold Rolling Contract
Gold has now fallen over $65 since the market made its high of 1392 last Monday morning. At that stage Gold was trading at the top of the Bollinger Band and Williams Index and the sell-off that we have seen shows how important these indicators are. After I posted yesterday morning it was trading at my 1338 buy level and while this trade looked good for a while I was quickly stopped out at 1333, after the Fed announcement, and I am still flat. I still believe that Gold is a ‘buy on dips’ especially that we have now had this correction and today I will be a small buyer from 1320/1326 with a 1310 stop which is just below the bottom of the Bollinger Band.
Silver Rolling Contract
No change as I am still long from 20.75 with the same 20.40 stop. If I am stopped out of my small position I will be a more aggressive buyer from 19.90/20.20 with a 19.70 stop.
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