The squeeze lower in the US Dollar extended after I posted yesterday morning, with the Bloomberg Dollar Spot Index falling below the lows it hit immediately after the FOMC Meeting last week. The Index closed down 0.9%, with the Australian Dollar an outperformer printing an overnight high of.7887. The pain trade which is still a weaker Dollar is still unfolding.
US economic data tended to print with the grain of US Dollar weakness, though they were no means the driver. Existing Home Sales and the Chicago Fed Index both undershot expectations, keeping the ‘surprise’ in US data firmly in deeply negative territory. There likely is an element of the FX market catching up to the downbeat tone of US data over the past two months. Until the FOMC Meeting, investors were willing to ignore the deterioration, choosing to focus on the still-strong employment data.
We note that the FOMC appears to believe that the softness in US data will be temporary. Yesterday Cleveland Fed President Mester, who is a non-voter, called the weakness transitory and noted that she was more optimistic on the outlook. For her a June rate rise remains a ‘viable option’.
Meanwhile Fed Vice Chair Fischer affirmed that a rate rise remains likely before the end of the year, and the data will determine whether rates lift off in June or September or another date. He also warned that the tightening cycle would not be smooth, unlike the steady pace of rate hikes between 2004 and 2007. On the US Dollar, Fischer opined that ECB QE would be good for the U.S. by boosting European growth with the favourable tailwind only partly offset by Dollar strength.
We also had St Louis Fed President James Bullard, in the Financial Times saying the U.S. risks inflating asset price bubbles with ‘devastating consequences’ if it leaves interest rates at zero, and should get on with the normalisation as soon as possible. He said that the US Dollar was unlikely to soar much higher when the Fed raised rates as markets had already priced this move into the exchange rate.
Last night Greek PM and German Chancellor Merkel had dinner with the menu likely to have contained a long list of reform measures yet to be implemented. Meanwhile ECB President Dragi has issued a staunch defence of ECB QE, arguing it does not in any way reduce the incentives for reforms.
This morning on the economic front we have German and Euro-Zone Services/ Manufacturing PMI at 8.30 am and 9.00 am respectively. This is followed at 9.30 am by UK CPI. At 12.30 pm the US will release its CPI. This is followed by the FHFA House Price Index and US Manufacturing PMI at 1.00 pm and 1.45 pm respectively. Finally at 2.00pm we have New Home Sales and the Richmond Fed Manufacturing Index.
June S&P 500
I mentioned last week that I wanted to see how the S&P would react to the completion of the March Expiration before deciding whether it was time to start to look to put on a more macro short position especially given the fact that we have three confirmed Hindenburg Omen’s which are live at this time. Yesterday the S&P which had been up all day had a very bad close on very low volume as the market followed the Transports lower. However for me turn bearish I need to see the market close below the 2075/2080 support level. I am still flat the S&P and today I will still look to go long on any further dip to 2081/2086 with the same 2074 stop. In contrast to yesterday I will also be a small seller on any rally higher to 2106/2111 with a 2114 stop.
EUR/USD
Very frustrating as the Dollar was in my buy level just before I posted but by the time it was posted on the website the Euro started to firm rapidly and as a result I am still flat. Today I will be a small seller on any further rally to 1.1035/1.1075 with a 1.1110 stop. My only interest in buying the Euro is on a dip to 1.0840/1.0880 with a 1.0790 stop.
US Dollar Index
Just like the EUR/USD above the Dollar just missed my sell level yesterday before literally getting slammed after I posted. There is no doubt that the 100 level is massive resistance for the Dollar. The main support for the Dollar comes in at 95.60 and it will take a break and close below this level for the Dollar uptrend to be in danger. Today I will be a small buyer on any further dip to 96.00/96.50 with a 95.45 stop. I will also lower my sell level to 97.50/97.90 with a 98.30 stop.
June DAX
The DAX plan has worked out very well this morning as after I posted yesterday the DAX traded lower to my 11890 buy level and after a nice rally this morning I have been able to cover this position at 11955 and I am now flat. However the rally in the Euro may slow down the rapid rise that we have already seen in the DAX so far this year. For this reason I will be a small seller on any further rally to 12020/12060 with a wider 12105 stop. The key support for the DAX is still at 11800 and today I will again look to buy the DAX on any dip to 11820/11860 with a 11785 stop.
June FTSE
No change as I am still a small buyer on any dip lower to 6900/6940 as I do not want to chase this market higher especially after the near 5% rally that the FTSE has had over the last week.
Dow Rolling Contract
The Dow plan also worked well yesterday as shortly after lunch the Dow rallied to my 18170 sell level and after a nice sell-off into the close I have been able to cover this position at 18100 and I am now flat. Today I will again look to go short on any rally higher to 18160/18210 with an 18250 stop. Given the fact that we have three confirmed Hindenburg Omen’s on the clock I do not want to be long the Dow at this time as I really believe that a decent correction for the Dow is inevitable especially given how weak the US economy has turned over the last six months.
June BUND
My short 158.90 Bund position worked out very well yesterday as soon after I posted the Bund finally started to sell-off which enabled me to cover this position at 158.30 and I am now flat. I will continue with my strategy of selling rallies with a tight stop especially when we see how low the Bund Yields are. Today I will again look to go short from 158.65/158.95 with a 159.25 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip to 1165/1175 with the same 1158 stop which is just below last Thursday’s low print.
Silver Rolling Contract
With Silver just missing my 16.60 buy level after I posted yesterday and the fact that I feel very uncomfortable at not been long Silver, I decided to buy the market at 16.90 this morning. I will leave a 16.40 stop on this position and if I am stopped out of this trade I will be a more aggressive buyer in front of 16.20 with a 15.70 stop.
Recent Comments