Yesterday’s US trading session has seen a significant – but still only partial – reversal of last Friday’s sharp reactions to a very disappointing US Payrolls Report. This is thanks in large part to strong US Non-Manufacturing Purchasing Managers Surveys. The ISM version met expectations for a 56.5 print, while the Markit version rose to 59.2 from 58.6 and 58.7 expected. The Employment sub-series of the ISM version rose to 56.6 from 56.4, which is its highest reading since October 2014.
US 5-year Treasury Yields, that lost 10 bps in the immediate aftermath of Friday’s Employment Report, added back 5bps on the ISM data, and 10-year Yields are back at 1.90% having fallen from 1.92% to 1.84%. Both the S&P500 and the Dow closed 0.66% higher with the rise led mainly by energy stocks following a sharp rebound in Oil prices after last Thursday’s slump on news of a preliminary nuclear deal between Iran and the World Powers.
The Euro which was trading over 1.1020 shortly after the US markets opened got hit hard into the New York close and we are back trading at 1.0920 this morning. The strength in the US Dollar was mainly driven by the fall in both Gold and Silver. Going back to last Friday’s awful Payroll Report, the only positive feature was that average hourly earnings rose by a bigger than forecast 0.3% for a 2.1% y/y rise which is up from 2.0% last month, but this is hardly confirming a definitive uptrend.
In reaction to the Payrolls Report, New York Fed President Bill Dudley who is a permanent voter and considered one of the more dovish members of the FOMC ‘inner circle’ said that the Fed must monitor whether the jobs report foreshadows a deeper slowdown. He said that he expects Q1 GDP of about 1.0% and that the timing of the first Fed Rate hike was still uncertain, and that rate rises when they arrive will be ‘shallow’.
This morning on the economic front we have German. Euro-Zone and UK Services PMI due at 8.55 am 9.00 am and 9.30 am respectively. This is followed at 10.00 am by Euro-Zone PPI. We have no data of note due from the US today. At 1.50 pm Fed Member Kocherlakota will speak on the economy at a conference in Bismarck North Dakota.
June S&P 500
The S&P plan did not work out yesterday as I broke one of my main golden rules, namely by ‘selling into the hole’ which is one rule you should not do especially when we have a large ‘Open Gap’ to the downside. After the US market opened I went short at 2053 in small size only to be very quickly stopped out of this trade at 2062 and I am now flat. Yesterday was another great example of how important it is to have stops in the market as after I was stopped out of this short position the S&P traded up to a 2080 high before having a very late sell-off. It is now clear that the 2035/2040 area is major support for the market as a break and close below here will be very bearish and there is no doubt that every time we test this area it is met by a wave of suspicious buying. We also have strong resistance from 2079/2085 and today I will again be a small seller in this area with a 2089 stop. Despite the positive price action yesterday I still do not want to be long the S&P at this time.
EUR/USD
Very late in the US trading session the euro got hit hard into the New York close which enabled me to go long the Euro at 1.0925. I am still long and I will leave my stop the same at 1.0870. Technically the Euro looks well bid and for this reason I still do not want to be short the Euro at this time. If I am stopped out of my long Euro position, I will be a more aggressive buyer on any further dip to 1.0800/1.0845 with a 1.0770 stop.
June US Dollar Index
No change as I am still a small seller on any further rally to 97.50/97.80 with the same 98.20 stop. My only interest in buying the Dollar is still on a dip to 95.90/96.35 with a 95.40 stop.
June DAX
Thankfully I have stayed flat the DAX over the past two days as this market is extremely difficult to read at this time especially with the fluctuations surrounding the now major 11940 pivot point. I have to respect the fact that we are now trading well above this level and today I will be a small buyer on any dip lower to 11960/12010 with a tight 11915 stop. I will also be a small seller on any further rally to 12180/12230 with a 12260 stop.
June FTSE
It was very frustrating that the FTSE market was closed yesterday as I was unable to cover my short 6790 position until the market opened early this morning. Given the huge move back in the US Indices yesterday I covered my position on the open at 6825 and I am now flat. Today I will again look to go short on any mover higher to 6895/6920 with a 6940 stop. I still do not want to be long the FTSE at this time especially with the UK Election coming up in a few weeks.
Dow Rolling Contract
The Dow plan also did not work out well yesterday as shortly after the US markets opened the Dow traded higher to my 17770 sell level before very quickly stopping me out of this position at 17850 and I am now flat. There is no doubt that the extreme volatility that we are witnessing in the Dow which is occurring in both directions is showing that a major move is on hand and in my opinion this will be to the downside. I will continue with my strategy of selling rallies in small size with a tight stop as this plan has worked very well so far in 2015. Today I will again look to go short on any move higher to 17970/18020 with a 18060 stop.
June BUND
With the Bund closed since last Thursday and the fact that the US Payroll Numbers were so weak I have decided to cover my short 159.10 position at 158.80 this morning and I am now flat. Today I will again look to go short on any move higher to 159.10/159.30 with a 159.50 stop.
Gold Rolling Contract
Gold has again found strong resistance at the 1220/1230 now key pivot level and with Gold selling off this morning I have decided to cover the rest of my 1196 position from last Thursday at 1214 and I am now flat. Today I will again be a small buyer on any further dip to 1199/1206 with a 1191 stop which is just below last Thursday’s low.
Silver Rolling Contract
No change as I am still long at 16.90. The fact that Silver is testing my 16.80 stop this morning I have decided to lower this stop again to 16.60. If I am stopped out of this position I will be a more aggressive buyer in front of 16.40 with a 15.90 stop.
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