A full week out from the ECB Meeting and participants are already playing a game of ‘what will they do?’. This is influencing the mood across many markets, not just Europe. Equities are up in Europe but generally flat at their highs elsewhere. Bond Yields continue to drop in Europe and in the US whilst the US Dollar gained yesterday and not just against the Euro. The joy of unconventional Monetary Policy continues!
In Europe whilst confidence, particularly Business Confidence, is at a high the ECB’s financial stability report said that there were downside risks to an already fragile recovery, pointing to the combination of a relatively weak economy and the unexpected rise in German Unemployment. This has added to the chatter about likely policy announcements next week.
Whilst a drop in interest rates to create a negative deposit rate is fully expected the alternative measures of increased LTRO or lending to specific sectors of the economy continue to be debated as speculation is rising. The buying of assets (QE) is perhaps down the track at this point.
This morning we have no economic of note due out of the UK or the Euro-Zone. As I mentioned yesterday, we have US GDP at 1:30 pm along with the Weekly Jobless Claims. This is followed at 3 pm by Pending Home Sales.
June S&P 500
The S&P plan worked well yesterday as by the time I posted the market was trading well inside my sell range. I went short at 1913 and after a nice sell-off after the US markets opened I was able to cover this position at 1907.5, ahead of session lows made just below 1905 and I am now flat. I expect a lot of volatility today surrounding the Weekly Jobless Claims and the very important GDP reading at 1.30 pm. The S&P continues to trade at the top of its Bollinger Band and Williams Index but I do not want to get too bearish as we have month end on Friday and the beginning of a new month on Monday whilst this is also a seasonally strong time of the year for stocks. Today I will raise my buy level to 1896/1901 with a 1893 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 1882 with a 1877 stop. Today despite the market being very overbought I do not want to go short unless we trade as high as 1917/1922 with a 1926 stop.
Euro/USD
No change as I am still long from earlier in the week at 1.3615 with the same 1.3580 stop. 1.3550 is key support for the Euro as break and close below here coupled with the recent break of the 1.3650/1.3700 support zone will add to the bearish case. In my opinion, a rate cut and more is already priced into the Euro ahead of next Thursday’s crucial ECB Meeting. If I am stopped out of this long position I will again be a buyer in front of 1.3550 with a tight 1.3530 stop. I will still be a seller on any rally to 1.3660/1.3690 with a 1.3710 stop
US Dollar Index
No change as I am still long from Tuesday at 80.20. Today, given the recent move higher in the Index, I will raise my stop to a breakeven. The next key resistance for the Dollar Index is from 81.20/81.50 and a closing break of this resistance will confirm a new breakout higher for the Dollar.
June DAX
I was unlucky with my 9930 short position from last Tuesday as I was stopped out very near the high of the day at 9970 before the market fell 70 points and I am now flat. This 9970/10000 is strong resistance and today I will be a small seller in this region with a 10030 stop. Again if I am taken short and subsequently stopped out I will be a more aggressive seller in front of 10240 with a 10350 stop. Given the volatility I have to use wider stops. I do not want to be long the Dax at this time given how over extended this market is trading. I also went short the DAX/FTSE spread yesterday morning at 3120 and I will leave a 3170 stop on this position.
June FTSE
No change as I am still a small buyer on any dip to 6790/6810 with a 6775 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow plan worked well yesterday as shortly after the US markets opened it traded down to my 16620 buy level before having a nice rally which enabled me to cover this position near the close at 16665 and I am now flat. Today I will lower my buy level to 16560/16600 with a 16535 stop. I still do not want to be short the Dow at this time despite how overbought the market is trading.
June BUND
Just after I posted the Bund just rallied and in the process made new highs. It is incredible that the Bund yield is now near 1.25% and this should not be happening if the economy was strong, whereas the German Dax is telling you the opposite. This means that next week’s ECB Meeting is even more crucial. Today I will raise my buy level in the Bund to 146.40/146.65 with a 146.25 stop. The price action over the last two months is telling you not to be short the Bund despite the record low yields.
Gold Rolling Contract
Gold, having initially opened stronger, was hit again to the downside shortly after the US Markets opened and in the process traded down to my 1256 buy level. As Gold is extremely oversold on a daily basis and I will leave my stop the same at 1243 on this position.
Silver Rolling Contract
Silver continues for the moment to trade stronger than Gold and I am still long from earlier in the week at 19.40 with the same 18.90 stop. Again if I am stopped out of this position I will be a more aggressive buyer form 18.30/18.70 with a 17.95 stop. The Daily Sentiment Index for Silver is again approaching single digits which normally indicates a counter trend rally is due to start over the next few days.
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