The US Dollar is little changed from 24 hours ago but Bond Yields are marginally lower after the Fed issued a post Meeting Statement repeating that it will be patient in beginning to normalise Monetary Policy. The Fed Statement offered few surprises and some subtle changes that keep the FOMC’s options open to either begin tightening later this year or hold off should conditions not warrant a shift in policy. The Fed upgraded its description of economic growth from moderate to solid pace in line with the 5% annualised rate seen through Q2, Q3 and ahead of tomorrow’s GDP data that should show that the US economy expanded at a 3% annualised pace in Q4. The Fed noted that the recent declines in energy prices have boosted household purchasing power. The Statement also acknowledged a further improvement in labour market conditions with ‘strong’ as opposed to ‘solid’ job gains, noting that the underutilisation of labour resources ‘continues to diminish’.
On inflation the FOMC added that market based measures of inflation expectations have ‘declined substantially’ in recent months, but while inflation is anticipated to decline further in the near-term, the Committee expects inflation to rise gradually towards 2% over the medium term. Alongside the labour market conditions, indicators of inflation pressures and expectations, the Fed included international developments to the list of things it is monitoring as it determines how long to maintain the current 0 to 1/4% Fed Funds Target Rate.
The US Stock Markets, having risen initially after the Fed Statement was released, were hit hard into the close with the Dow and S&P both closing down over 1% despite the excellent results from Apple.
This morning on the economic front, Germany will release its latest Unemployment Rate and very important CPI at 8.55 am and 1.00 pm respectively. At 10.00 am we will get the Business Climate Indicator from the Euro-Zone. Finally from the US, we will have the Weekly Jobless Claims and Pending Home Sales at 1.30 pm and 3.00 pm respectively.
March S&P 500
The S&P has been making a series of lower lows and lower highs since last week, defining a near-term downtrend. Worryingly despite the huge move up in European Indices, this has not filtered through to the US markets which are on the verge of a serious melt-down especially if the S&P closes below 1970 for 2/3 days. A close below here opens up an acceleration to 1900, where we still have an ‘Open Gap’ since last October.
The S&P plan worked well yesterday as by the time that I posted the market was trading at the bottom of my buy range at 2031 and following a nice rally before lunch I was able to cover this position at 2037. Soon after the US markets opened, the S&P traded lower to my 2023 buy level before again having a nice rally ahead of the FOMC Statement announcement which enabled me to cover this trade at 2030 and I am now flat. The price action into the close was again very weak and I have no doubt that the record-low US Bond Yields is a big worry that the US is possibly heading back into recession again over the coming months which will not be good for the stock market. Today I have to respect the break-down over the last couple of days and the fact that we have broken the key 2010/2020 resistance level. For that reason I will be a small seller from 1998/2005 with a 2012 stop. If I am taken short and subsequently stopped out, I will be a more aggressive seller in front of 2020 with a 2027 stop. My only interest in buying the S&P is on a dip to 1968/1973 with a 1959 stop. A break and close below 1970 is extremely bearish.
EUR/USD
Overnight the Euro finally traded lower to my 1.1270 buy level. I am still long and I will raise my stop on this position to 1.1235. If I am stopped out of this trade I will be a more aggressive buyer on any further dip to 1.1180/1.1210 with a 1.1145 stop. My only interest in selling the Euro is still on a rally to 1.1530/1.1580 with a 1.1620 stop.
US Dollar Index
The Dollar also traded higher to my 94.85 sell level overnight. I am still short and I will leave my stop the same at 95.30 on this position.
March DAX
The DAX plan also worked well yesterday as after I posted the Dax traded higher to my 10720 sell level before having a nice sell-off soon after the US markets opened. As I wanted to be flat ahead of the FOMC Statement announcement I covered this short position at 10650 and I am now flat. Remarkably the Dax continues to hold-in despite the awful close in the US markets but if the US markets continue to decline, it will only be a matter of time before the DAX follows suit. Today I will again be a small seller on any rally back to 10670/10720 with a 10750 stop. My only interest in buying the Dax today is on a dip to 10380/10440 with a 10330 stop.
March FTSE
Finally we are seeing some profit taking in the FTSE which is back trading at the 6710 level this morning. I am still flat and just like the Dax, I cannot see the FTSE continue to hold-in while the US Markets are being hit hard to the downside. Today I will lower my buy level to 6630/6660 with a 6595 stop. I will also be a small seller on any rally back to 6750/6780 with a 6805 stop.
Dow Rolling Contract
Just like the S&P, the Dow had a very bad close last night and is now back to its lowest level since December 16. The market has now fallen over 800 points since its December 29 high with the strong Dollar having a huge impact on the profitability of a lot of the Dow stocks.
The Dow plan did not work out yesterday as shortly after the Fed released its Statement the market traded lower to my 17310 buy level before literally 10 minutes later stopping me out of this trade at 17250 and I am now flat. The next main support for the Dow comes in at the December 16 close at 17068 and today I will be a small buyer from 17050/17110 with a wider 16990 stop. I will also lower my sell level to 17290/17340 with a 17380 stop.
March BUND
This morning the Bund traded higher to my 159.00 sell level. I am still short and today I will lower my stop level slightly to 159.30. If I am stopped out of this trade I will be a more aggressive seller in front of 159.70 with a 160.10 stop.
Gold Rolling Contract
Gold continues to find the $1300 level very hard to break. I am still flat and with Gold trading softer this morning I am going to lower my buy level to 1260/1268 with a 1249 stop. The 1260/1270 area should act as good support as it proved a very difficult range to break on the way up to 1320.
Silver Rolling Contract
No change as I am still a small buyer from 17.10/17.50 with the same 16.70 stop.
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