Opinion -Wednesday 10 July 2013

Equity markets finished the day higher with sentiment boosted by a good start to the US earnings season after Alcoa beat market expectations. European markets finished up 0.8% whilst US markets averaged a 0.6% gain. The gains came despite a downgrade to the growth outlook by the IMF. Global Growth was revised lower in both 2013 and 2014 by 0.2pps to 3.1% and 3.8% respectively. The growing concern about Chinese Growth highlighted with a 0.6pps cut to 7.7% for 2014 while US Growth is now forecast at 1.7% next year, down from 1.9%.

We had some big moves in currencies yesterday with big falls in the Euro and Sterling. The EUR/USD slid to its lowest level in three months, after dovish comments from ECB member Asmussen, who backed Dragi”s comments last week that the ECB will maintain accommodative policy for an extended period. The Euro fell from near 1.2900 highs to a low of 1.2752. Meanwhile S&P downgraded Italy’s Sovereign Credit rating by one notch to BBB from BBB+, citing the country”s worsening economic prospects. Sterling suffered after UK Manufacturing Production fell 0.8% in May versus +0.4% expected.

This morning on the Economic front we have German CPI followed in the US by the MBA Mortgage Application data. Later this evening we have the FOMC Minutes from the June 18-19 meeting where all the focus will be on the discussion surrounding the timing of tapering QE. Chairman Bernanke then speaks in Boston a couple of hours after the Minutes are released.

September S&P 500

The S&P worked well yesterday as we dropped down to my 1639 buy level before the market had a nice rally. I was able to cover this position at 1646 and I am now flat. Today all eyes will be on the release of the FOMC Minutes this evening as the market will look for any clues as to when the Fed will start to taper QE. The S&P is overbought here and today I will be a small seller on any rally to 1650/1656 with a 1662 stop. Given the sell off that we had from the change of policy at this meeting last month and the market reaction to it, I am not going to go long today as I would expect the market to sell off later. Remember a break and close over 1660 will be bullish.

Euro/USD

The Euro was trading nicely higher all day until comments from ECB member Aamussen sent the Euro lower, taking me out of my 1.2830 long position for a small loss at 1.2810. The Euro traded down to the critical 1.2750 support zone before having a nice rally. I rebought the Euro at 1.2760 and I have covered this position this morning at 1.2790 for a small profit and I am now flat. Today I will be a buyer one more time on any dip to 1.2745/1.2760 with a 1.2730 stop. As I have been saying for the last three months a break and close below 1.2750 will be extremely bearish and this could lead to the Euro accelerating lower.

September DAX

The Dax worked well yesterday as the market had a nice sell off after I posted and I was able to cover my 8060 short position from yesterday morning at 8020 and I am now flat. The Dax just missed my 8000 buy level with a 8006 low. To me the price action in the Dax is one of a ‘topping market’ when you consider how strong the FTSE and S&P are trading and today I will be a small seller on any rally to 8095/8120 with a 8140 stop. I do not want to be long at this time.

September FTSE

The FTSE worked well yesterday as the market hit my 6475 sell level before selling off. I covered this position for a small profit at 6448 and I am now flat. The FTSE continues to trade at the top of the Bollinger Band and Williams Index and today I will be a small seller again on any rally to 6490/6520 with a 6540 stop. My only interest in buying the FTSE is on any drop to 6310/6350 with a 6280 stop.

Gold Rolling Contract

Gold Worked well yesterday as we finally traded down to my 1242 buy level. It has had a nice rally overnight and I have covered this long position at 1253 and I am now flat. Today I will still look to reset my long position on any dip to 1230/1242 with the same 1218 stop. I will also be a seller on any rally to 1290/1300 with the same 1310 stop.

Silver Rolling Contract

Silver also traded down to my 19.15 buy level. I am still long and I will leave my stop the same at 18.80. Silver needs to break 20.50 for me to feel comfortable that we have then put in a reasonable bottom.