Markets were slightly lower yesterday on the back of weaker than expected Retail Sales from the US and a downgrade to the IMF’s World Economic Outlook. US Retail Sales fell 0.5% in June and have now fallen for 3 consecutive months. Given the recent weak outcomes in the labour market, the retail data further reinforces expectations for additional Fed easing. The IMF updated it’s April forecasts and called for Governments and Central Banks to implement further policy action as it lowered it’s world growth estimates this year to 3.5% versus 3.6% in April. Therefore all eyes will be on Bernanke as he give his Monetary Report to the Senate this afternoon. The markets are looking for some clarity on what it will take for the Fed to resume QE. Later this morning we have German ZEW and CPI from the UK.
Sept S&P 500
The S&P traded down to my buy level and I was able to go long at 1346. I have taken profit this morning at 1354 as I want to be flat ahead of Bernanke’s address. The market is so hard to trade from the short size, as every time we get bad economic news the market sells off for a few minutes and then bounces back on the threat of QE. If Bernanke does not mention QE we will probably trade down to 1340 where I will be a buyer with a tight stop. On the other hand if he mentions and implements QE we will probably trade up to 1400 over the next week. I will also be a buyer if he does the latter.
EURO
The Euro worked great as we had a 1.2175 low and I went long at 1.2200. I was able to take profit at 1.2280 last night and I am now flat. Today if we get QE I will look to go short the Euro from 1.2400/1.2430 which is major trend line resistance and I will leave a stop at 1.2450.
Sept FTSE
The FTSE also traded down to my buy level and I went long at 5595. I have taken profit this morning at 5630. The FTSE continues to underperform all other Equity markets on the back of the Libor crisis. If we break 5645 I will be a small buyer with a 5628 stop.
USD/JPY
The USD/JPY traded down to my buy zone and I went long at 78.75. will leave a 78.80 stop and I will also look to take profit from 79.20/79.30.
Sept BUND
The Bund traded up to my sell level and I went short at 145.20. I will leave a breakeven stop and if the market trades down to 144.70 I will look to take profit here. If I am taken out at 144.70 I will look to reset my short position from 145.10/145.30 with a 145.40 stop.
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