The US Dollar had a sharp fall as expected yesterday with the Dollar being further weakened after Wall Street Journal’s Fed watcher Jon Hilsenrath said that the FOMC will not make a major change in its statement tonight and will maintain its pledge to keep the Fed Funds Rate low for a considerable time after asset purchases end. That saw the Dollar Index fall to a low of 83.90 with all major currencies gaining against it and, in particular, the Aussi Dollar seeing the biggest movement to the upside.
The Euro also rallied against the US Dollar rising to a high of 1.2995 before returning to around 1.2950 currently. Earlier yesterday morning the Euro found some support after the Expectations Component of the German ZEW Survey fell to 6.9 in September versus 5.0 expected and 8.6 in August. The Euro largely ignored the plunge in the Current Situation Index to 25.4 from 44.3 last month.
In the UK the CPI rose by 04% in August and 1.5% annually which helped strengthen Sterling. The US stock market rally was also helped by a report that China’s Central Bank is using its standing lending facility to boost liquidity in the country’s five biggest banks by 500 billion Yuan ($81 billion}. This move gives the market some comfort that the Chinese authorities will stabilise economic growth after recent data showed activity slowing down.
This morning on the economic front we have UK Unemployment and Average Earnings at 9.30 am. At the same time the Bank of England will release its latest minutes from its last meeting. At 10.00 am we have Euro-Zone CPI and this is followed at 1.30 pm by US CPI and Current Account Balance. At 3 pm we have the NAHB Housing Market Index. Finally at 7 pm we have the FOMC Rate and Asset Purchase Announcement . This is followed by Fed, Chair Janet Yellen’s press conference.
December S&P 500
I have now rolled to the December Contract which trades with an 8 handle discount to the September Contract/Cash market. Shortly after I posted yesterday morning the September Contract traded down to my 1979 buy level and following a sharp rally on the Hilsenrath story the S&P very quickly exploded to the upside which enabled me to cover this position at 1987. The market then traded higher to my 1990 sell level before very quickly stopping me out of this position at 1996. Finally as the market continued to trade higher I was unfortunately I stopped out of my macro short position for a break-even at 2001 and I am now flat in all S&P positions.
I am still expecting a decent correction over the next 5 weeks and historically, before major declines, volatility has increased in both directions. Incredibly before the 1987 crash the Dow rose 1.50% four days before the carnage started. In 2008 the Dow also rose by more than 1% on eight occasions leading up to the start of the crash on Black Monday, September 29th where the market fell 7% in one day. In addition, leading up to this day the market rose 1% on each of the previous two trading days.
Today the Fed will announce its latest QE and interest rate projections at 7 pm. This is followed by the Yellen press conference and I would expect a lot of volatility surrounding this announcement. If the market reacts negatively it is very difficult to see the S&P falling too much especially with the September Contract expiration on Friday. I am going to stay flat ahead of the FOMC and afterwards I will be a buyer of the December Contract on any dip to 1978/1983 with a 1969 stop which is just below this week’s low. The 1992 level is key as a break and close over this level for a few days opens up the possibility of a decent move to the upside. My only interest in selling the market is on a rally to 2002/2006 with a 2009 stop
Euro/USD
My long 1.2920 Euro position worked out well yesterday as the market had a decent rally which was indicated by the poor sentiment against the Dollar and the fact we were trading at the bottom of the Bollinger Band. This rally enabled me to cover my position at 1.2970 and I am now flat. Today I will again be a buyer on any dip to 1.2900/1.2930 with a 1.2870 stop. Given how oversold the Euro is trading I still do not want to be short the market at this time.
US Dollar Index
My short 84.50 position worked out well yesterday as the Dollar had a nice sell-off on the Hilsenrath story and this enabled me to be able to cover at 84.15 and I am now flat. Today I will again be a seller on any rally to 84.55/84.85 with a 85.20 stop.
December DAX
This morning I have rolled to the December Contract which trades at a 7 point premium to the September Contract/Cash market. Yesterday the Dax plan worked well as the September contract traded down to my 9590 buy level before following the S&P higher which enabled me to cover this position at 9645 and I am now flat. I must say that given the extent of the US stock move higher I thought the Dax would have gained more momentum. Today I will again be a buyer on any dip in the December Contract to 9580/9610 with a 9555 stop. Again if I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 9470 with a 9435 stop.
December FTSE
This morning I have rolled to the December Contract which trades at a 27 point discount to the September Contract/Cash market. Yesterday after I posted, the FTSE was trading near the lows of the day and this enabled me to buy this market at 6770. Following the S&P move higher I was able to cover this position at 6800 and I am now flat. The FTSE continues to under-perform the other major indices and this is understandable given tomorrow’s referendum. Today I will again be a buyer on any dip in the December Contract to 6725/6755 with a 6695 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow just missed my buy level by 5 points before exploding to the upside. Thankfully we were not short as I had mentioned that I was looking for a move higher ahead of the FOMC but I have to be honest, I did not think it would be so aggressive. Today I will be a small seller on any further rally to 17210/17240 with a 17270 stop. I will also move my buy level higher to 17030/17070 with a 16990 stop.
December BUND
No change as I am still a small buyer from 147.80/148.00 with the same 147.60 stop.
Gold Rolling Contract
I am still long Gold at 1229 with the same 1218 stop. I was disappointed with yesterday’s price action especially when the Dollar started to weaken and Gold did not really follow suit.
Silver Rolling Contract
No change as I am still long at 18.60 with the same 18.25 stop.
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