The RBA’s Glen Stephens spoke yesterday, and some of his words clearly resonated in the FX market if less so in interest rate markets. Newswire headlines screaming ‘Question of interest rate cuts has to be on the table’ and ‘Aussie Dollar will very likely fall further’ had an immediate impact on the currency’, with AUD/USD back trading below 0.77 this morning. This represents a complete reversal of the jump we saw in all things AUD immediately following last Thursday’s much better than expected Employment Report. Mr Stephens comments on the currency really are not anything new, what is that the easing bias put in place in February alongside the cut in the Cash Rate to 2.25% looks to be very much intact notwithstanding the apparent improvements in the labour market that now date back to before the February RBA Meeting.
That said, while Mr Stephens has made it very clear that the door remains wide open for a further rate cut, it is still far from obvious that the Board will choose to walk through it again as early as May 5.
There was not a lot to say about yesterday’s market action, where the stock markets staged something of a comeback from last Friday’s savaging, buoyed by Sunday’s China RRR cut announcement and an earnings beat from Morgan Stanley. Ongoing Greek default jitters remain very evident, and this does see the Euro a lot lower this morning at 1.0670. Fears have also been reflected in a fresh rise in Greek Bond Yields, with 2017 maturities hitting a fresh record high of 28%.
New York Fed President Dudley spoke yesterday afternoon, where he again emphasised the data dependency of Fed Policy, while Boston Fed President Eric Rosengren said he is ‘hopeful’ conditions will be right sometime ‘this year’ to lift rates but not now.
This morning on the economic front we have the UK ONS House Price Index at 9.30 am. This is followed by the German ZEW Current Situation/Expectations at 10.00 am where the consensus is for a 55.1 and 54.8 print respectively. We have no data of note due from the US this afternoon.
June S&P 500
Yesterday saw the S&P completely reverse last Friday’s savage sell-off buoyed by the rate cut from the Chinese Central Bank late on Sunday. The volatility in the stock markets so far in 2015 has been incredible with every sell-off been met by a wave of buying as the authorities cannot allow a situation to develop where the market crashes. At this time if you do not take your profit when you have any it will evaporate away easily no matter which way you are positioned and this theme will continue until we ever get a sell extreme that lasts for more than a few days as opposed to just a few hours. Yesterday after I posted the S&P finally traded higher to my 2094 sell level and while this position looked fine last night, unfortunately I have just been stopped out of this trade at 2101 this morning and I am now flat. I must confess that going home on Friday that the sell-off that had ensued in all markets that day was the start of something big but the Chinese put paid to that notion and the snap-back has been incredible in such a short period of time. I have to respect the fact that the S&P closed back above the now key 2090 pivot point and today I will again be a small buyer on any dip lower to 2089/2094 with a 2085 stop. My only interest in selling the market is still on a rally to 2114/2119 with a 2123 stop.
EUR/USD
The increasing fragile situation in Greece has led to the Euro selling off again this morning which has stopped me out of my long 1.0740 position taken soon after I posted yesterday morning at 1.0695 and I am now flat. I must say I am surprised by this development especially given the interview by ECB President Dragi over the weekend where he said it was ‘pointless’ to go short the Euro. One lesson that I have learned is that since Dragi has become ECB President he has been able to influence the market with his speeches and given his latest comments I would not be short the Euro despite the current negative price action. For these reasons I will again look to buy the Euro on any dip lower to 1.0630/1.0660 with a 1.0595 stop.
June US Dollar Index
Just like the Euro above I was also stopped out of my latest 97.90 short position at 98.20. This morning the Dollar has continued to rally and I have gone short again at 98.60. I will leave my stop the same at a tight 98.90.
June DAX
The volatility in the DAX has been staggering over the past few days with the market having its worst week since 2011 with its 5.5% fall and 400 point sell-off on Friday only to rebound nearly 500 points off this low this morning. Shortly after I posted yesterday morning the DAX spiked to my 11900 sell level before very quickly stopping me out of this position for a small loss at 11950 and I am now flat. The volatility again emphasises how important it is to have stops in the market while at the same time trade in smaller size. One very important point this year is that liquidity has dried up in nearly all markets and is one very component of why the markets are so volatile. Today I will again try the downside on any further move higher in small size to 12130/12170 with a wider 12205 stop.
June FTSE
The move higher in the FTSE this morning has finally hit my 7055 sell level. I am still short and today I will lower my stop on this position to 7080.
Dow Rolling Contract
The Dow plan worked well yesterday as the market rallied to my 18050 sell level before having a nice sell-off into the close which enabled me to cover this position at 18000 and I am now flat. Thankfully I managed to cover this position especially with the Dow following the other markets higher this morning. I am still nervous to be long the Dow especially with the three confirmed Hindenburg Omen’s on the clock. For this reason I will continue with my strategy of selling rallies with a tight stop as this strategy has worked really well so far in 2015. Today I will again look to go short on any move higher to 18190/18240 with a 18270 stop.
June BUND
No change as I am still short from last week at 160.35. Again I will still look to add to this position on any move higher to 160.75 with a 161.10 stop on both positions. Meanwhile if the Bund trades back below 160.00 I will look to cover my initial short position.
Gold Rolling Contract
Presently Gold is having real difficulty in taking out the now very strong resistance at 1220/1230 area. Yesterday after I posted gold traded lower to my 1196 buy level. I am still long and I will leave my stop the same at a tight 1189. If I am stopped out of this trade I will be a more aggressive buyer in front of 1177 with an 1169 stop.
Silver Rolling Contract
Yesterday was not my day as I was finally stopped out of my long 16.40 position at 15.90 and I am now flat. Long term members know that I am bullish on Silver and so far this year the strategy of buying dips has worked out really well. The major support for Silver is at last January’s spike lower at 14.49 and as long as we can stay over this level Silver is fine. Today I will again look to buy the market on any dip lower to 15.40/15.80 with a 14.90 stop.
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