In the absence of anything particularly exciting to say about markets over the past 24 hours, it is worth noting that Irish 10 Year Government Bonds have just fallen below 1% for the first time, having been above 14% at the height of the Euro-Zone crisis less than 7 years ago. In the United States, it took the best part of 30 years for its 10-Year Note to fall from 14% to a low of 1.4%. This move lower was helped by the fact that Germany was able to sell 5-year Bonds at its auction yesterday at an incredible -8bps.
The US Dollar continues to edge lower, reflecting the consensus that Fed Chair Yellen’s Testimony has pushed back the time at which the Fed begins to raise rates. Just to be clear I did not see anything particularly dovish in Ms Yellen’s Testimony, but certainly the FOMC have given itself more flexibility than before in relation to the first rate rise. If US economic data begins to positive surprise once more, the market will quickly jump back on the buy the US Dollar bandwagon.
In FX the biggest mover over the past 24 hours was the Canadian Dollar which strengthened by over 2% after Bank of Canada Governor Poloz commented that January’s shock rate cut was an insurance measure and that the Central Bank could now afford to see how the economy responds. This led to the interest market reduce its expectation of a further 25bp rate cut from 80% to 40%. The CAD gained strongly against the US Dollar and closed at 1.24 from over 1.26 before Governor Poloz’s comments.
This morning on the economic front we already had the German GIK Consumer Confidence which came in better than expected at 9.7. Interestingly this is the highest reading in 13 years. At 8.55 am we have German Unemployment and this is followed at 9.30 am by UK GDP, which will certainly grab the market’s attention. At 10.00 am we have Euro-Zone Economic Confidence and Business Climate Indicator. The US will release its latest Weekly Jobless Claims, Durable Goods Orders, and CPI all at the same time at 1.30 pm. Finally at 2.00 pm the US will release the FHFA House Price Index, and the House Price Purchase Index.
March S&P 500
This week so far has been the quietest for S&P trading as the market is now taking a break after the huge 140 handle rally that ensued over the past three weeks from the 1973.50 low. The NASDAQ had closed higher for 10 consecutive days until yesterday, which is rare. Since the NASDAQ’s 2000 top, the only other longer streak was 12 consecutive up closes ending in July 2009. The most recent Investors Intelligence Advisors Survey shows a whopping 4.22 to 1 ratio of bull-to-bears which is the highest on record. There is no doubt that this market is extremely stretched but until we see a sell extreme that draws the S&P back below the now strong support at 2067/2072 I will continue with my strategy of selling rallies with a tight stop.
I am still flat the S&P which is extremely rare for me and today I will lower my sell level slightly to 2016/2021 with a 2025 stop. Given the amount of economic data to be released later it should lead to more volatility than we have seen so far this week. If I am taken short and subsequently stopped out I will use my 5 handle rule to go short again with a stop above whatever new high print is made. My only interest in buying the market today is on a dip lower to 2093/2098 with a tight 2088 stop.
EUR/USD
No change as I am still a small buyer on any dip lower to 1.1280/1.1320 with a tight 1.1250 stop. The Euro continues to trade in the 1.1260/1.1450 range that has persisted over the past few weeks. The Euro needs to break out of this range before volatility picks up after what has been a very quiet February for the EUR/USD. My own belief is the Euro will break higher given the level of extreme pessimism towards the currency.
US Dollar Index
Just like the Euro above the Dollar also traded in a very narrow range yesterday. I am still a seller on any rally higher to 94.60/94.90 with a 95.30 stop. I still do not want to be long the Dollar at this time.
March DAX
Just like the S&P above, yesterday was the quietest trading session for the DAX this year. This is no surprise given the fact that the DAX has rallied nearly 20% so far in 2015 and is due to take a break. The market is extremely overbought and my only interest in selling the DAX is still on a rally to 11280/11320 with the same 11360 stop. Despite the positive price action I still do not want to be long the DAX at this time.
March FTSE
My short 6910 FTSE position worked out well yesterday as the FTSE had a small sell-off after I posted which enabled me to cover this position at 6880 and I am now flat. Today I will still be a small seller on any further rally to 6925/6950 with a 6970 stop. I will leave my buy level unchanged at 6840/6865 with a 6825 stop.
Dow Rolling Contract
Yesterday the Dow also traded in its narrowest range for the year to date. I still have my 18200 short position from Tuesday but the fact that we have a sleuth of economic data later I have decided to cover this position for a small loss at 18220 and I am now flat. Today I will again look to go short on any further rally to 18290/18330 with an 18360 stop.
March BUND
The Bund plan did not work out so well yesterday. Following the very successful German 5-Year Auction where the Yield was an incredible negative -8 bps The Bund traded higher to my 159.35 sell level before stopping me out of this position at 159.70 this morning and I am now flat. The strategy of selling rallies with a tight stop has worked really well until this morning and today I will again look to go short on any further spike higher to 160.10/160.40 with a 160.60 stop. Naturally I do not want to be long the Bund at this time especially given the fact that the market is nearly trading at a negative interest rate.
Gold Rolling Contract
The Gold plan worked out very well yesterday as shortly after I posted Gold traded lower to my 1202 buy level. Gold is trading nicely higher this morning and I have decided to cover this position at 1214 and I am now flat. Today I will again be a small buyer on any dip lower to 1199/1206 with a 1189 stop.
Silver Rolling Contract
My long 16.20 Silver trade has finally paid off this morning with the Silver trading 4% higher. I have decided to cover half of this position at 16.80 and I will raise my stop to 16.40 on the other half. Silver really needs to break the 17.25/17.50 resistance for the market to trade higher.
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