Opinion – Wednesday 1 October 2014

Data released yesterday showed the EU Unemployment Rate steady at 11.5% in August but there was a sting in the tail of the CPI release. The surprise was in the September reading of core CPI that came in at 0.7% below the range of expectations centered at 0.9%. The EUR/USD gapped lower by a big figure, falling towards 1.2570 before finding support and rebounding to 1.2630 this morning. Euro-Zone equity markets closed an average of 1.2% higher, assisted by the prospect of continued stimulative policy from the ECB.

US September economic data releases were also short of the mark especially the Conference Board’s measure of Consumer Confidence that pulled back to 86.0 from 93.4. There was also a decline in the consumers perceptions of the job market with the Jobs Plentiful Index which printed at 15.0 up from 12.4 after several months of improvement. The US Dollar Index has eased back from intra-day highs to sit just over 85.90 this morning.

Earlier this morning China released its Purchasing Manager’s Index which came in at 51.1 for September which was the same reading as August. China’s Manufacturing continues to stay subdued as the economy continues to be weighed down by the property slump.

This morning on the economic front we have German and Euro-Zone PMI Manufacturing at 9.00 am. This is followed at 9.30 am by the UK PMI Manufacturing while at 1.30 pm we have the very important US ADP Employment change which will be closely watched for any clues ahead of Friday’s Non Farm Payrolls. At 2.45 pm we have the US Manufacturing PMI while finally at 3 pm we have the ISM Manufacturing.

December S&P 500

The S&P had another wild trading session yesterday as traders try to determine the next major move. When we see this two-way price action near recent highs it normally signals a change of trend. The S&P has had it worse quarter in two years and the market has to get used to the prospect that QE will end at the next Fed Meeting on October 30.

The S&P plan worked well as shortly after the US markets opened it rallied up to my 1978 sell level before having a nice sell-off which enabled me to cover this position at 1969 and I am now flat. As I mentioned yesterday the S&P has major support at 1940 and a break and close below here opens up the possibility for a quick move down to at least 1870. Resistance comes in at 1978/1985 and today I will lower my sell level to 1974/1979 with a 1983 stop. Given my real concerns about the way this market is trading and despite the fact that today is the beginning of a new month which generally sees a lot of new monies hitting the market I still do not want to be long the S&P at this time.

Euro/USD

The Euro collapsed just before I posted yesterday morning after the weaker than expected CPI release. By the time that I had posted the Euro was already trading below my buy level and I am still flat. It is amazing that since 2007 when the World Central Banks started to expand their balance sheets which has now reached $7/8bn that we still have no inflation. Today, given how oversold the Euro is currently trading, I will again be a small buyer from 1.2570/1.2610 with a 1.2550 which is just below yesterday’s low.

US Dollar Index

By the time that I posted yesterday morning the Dollar Index was trading at my 86.10 sell level. I am still short and I will leave my stop the same at 86.40 as I look for the US Dollar to sell-off after its recent 10% spike higher.

December DAX

The Dax plan also worked well yesterday as shortly after I posted it was trading at my 9470 sell level. It then followed the US markets lower which enabled me to cover this short position at 9415 and I am now flat. The Dax is testing yesterday’s high at 9500 this morning and today I will again be a small seller from 9510/9540 with a 9560 stop. Given the recent break lower I still do not want to be long the market at this time.

December FTSE