Markets initially reacted negatively to Fed Chairman Bernanke’s testimony to the Senate as he gave no hints of monetary easing. However in the Q&A session afterwards the hints were all there as he outlined the policy instruments they could use. This information helped to reverse the markets and led to a 20 handle rally in the S&P from the lows. He also expressed his frustration at the slowness of the recovery and chided Congress about its lack of progress on Fiscal Policy which was adding to the uncertainty. The US Dollar, having rallied strongly, also weakened sharply on this news. The problem for markets now is that they are prone to disappointment should the Fed be seen to be procrastinating on August 1st, following its next policy meeting.

In other news the German ZEW came in at 21.1 after falling to 33.2 last month and well below expectations of 30. However the DAX ignored this weak number and in the UK, CPI fell to it lowest level since 2008 with a rate of 2.4% down from 2.8% last month. Later today we have the Minutes from the BOE. In the US we have Housing Starts and the Fed releases its Beige Book Report. Bernanke is also back for a second day as he gives a semi-annual report to the US House.

Sept S&P 500

Yesterday was another good example of the wisdom of being flat into a major announcement as it puts you in a better position to make clearer judgements. Just after Bernanke spoke, the market dropped hard and traded down to my buy level at 1340 and following the Q&A session and his hint of QE the S&P quickly traded back to 1358 where I was able to take profit and I am now flat. Today, I will look to buy from 1349/1353 with a 1346 stop and I will look to take profit from 1360/1363. If we break and close over 1363 I would expect the market to challenge the highs of 1375 made 2 weeks ago.

EURO

The Euro was extremely volatile yesterday as we quickly fell back to the 1.2190 support, before rising over 100 pips back to the 1.2300 level, where we are this morning. I will raise my buy level to 1.2240/1.2260 with a 1.2220 stop. A break of 1.2320 will lead to a rally to the 1.2400/1.2430 level where I will look to sell the first time there with a 1.2450 stop. On a more macro view, I think the Euro will bottom somewhere between 1.17 and 1.20.

USD/JPY

The USD/JPY rallied to my 79.20 level and I am now flat. I will keep my buy level the same at 78.60/78.80 with a 78.50 stop. The USD/JPY is not as volatile as other currency pairs and thus we have to look for smaller moves. If I am taken long I will look to take profit from 79.15/79.30.

Sept BUND

The Bund worked great yesterday as we traded down to my profit area at 144.70 with a 144.62 low before it rallied back to my sell level at 145.20 with a 145.26 high. I have taken my small profit here at 145.00 and I am now flat and I am going to stay flat to see how we trade over the next 24 hours.

Sept DAX

The Dax is not giving up much ground, making it hard to get a long position on. Today I will look to go long, in small size, from 6550/6570 with a stop below yesterday’s low at 6540. If I am taken long I will look to take profit from 6630/6650 which is just above yesterdays high.