It was interesting to see equity markets higher yesterday in light of market moves elsewhere which were more consistent with traders expecting less accommodative measures by the Fed – if not tonight then in the future. European Equities were stronger, as were US Stocks, but US 10-Year Treasuries rose to 2.65% and the US Dollar was stronger across the board. Emerging market currencies were particularly soft but all G10 currencies closed lower against the US Dollar.
The clincher for the move was a stronger than expected US CPI Inflation outcome as the monthly rise of 0.4% was the highest since February 2013. Headline CPI was 2.1% year on year versus 2.0% expected. Almost all measures of US price pressure are rising and the CPI now shows clearly an upswing in momentum. With the US Labour market improving and the Fed’s other mandate being stable prices, these type of inflation pick-ups will make it difficult for the Fed to ignore.
The US Housing data was generally ignored by markets with softer Housing Starts and Permits. The weakness was a likely reaction to some very large outcomes in recent months and the annual sales look steady.
The UK also released its Inflation yesterday with a softer outcome as the 1.6% year on year core measure was below the 1.7% expected and 18% prior outcome.
This morning on the economic front, at 9.30 am, we have the very important Bank of England Minutes from its last meeting especially given Governor Carney’s recent hint of a rise in UK rates. We have no data of note due from the Euro-Zone whilst at 1.30 pm we have the latest US Current Account Balance. At 6.45 pm former Fed Chairman, Bernanke will speak in Zurich just before the Fed release the FOMC rate announcement and latest QE tapering update at 7 pm. It promises to be a busy and volatile trading session this evening.
June S&P 500
This is the last day that I will be trading the June Contract and I will roll to the September Contract tomorrow as the June Futures Contract expires at 2.35 pm on Friday. The mantra of never being short ahead of an FOMC Meeting continues, as every dip this week has been bought despite the economic news been to the contrary.
The S&P plan worked well yesterday as after the stronger than expected CPI was released the market sold off to a low of 1931 before having a strong rally and in the process closed the first of the ‘Open Gaps’ at 1943 that I mentioned in yesterday’s commentary. I bought the S&P at 1934 and after the rally ensued I was able to cover this position at 1940 and I am now flat. We still have the 1950 Gap from last week and it will be interesting to see if we fill this Gap after the FOMC tapering announcement at 7pm. I am going to stay flat ahead of the FOMC and if the market sells off after the announcement I will be a buyer from 1928/1932 with a 1924 stop which is just below last Thursday’s low. I will also be a small seller on any rally to 1947/1952 with a 1955 stop.
Euro/USD
After the US released its CPI yesterday the Euro sold off to my 1.3540 buy level. I am still long and today I will raise my stop on this position to 1.3510 as we await this evening’s announcement which could prove very interesting for the US Dollar. If I am stopped out of this position I will be a more aggressive buyer in front of 1.3450 with a 1.3425 stop. I still do not want to be short the Euro at this time.
US Dollar Index
No change as I am still a buyer from 80.10/80.30 with the same 79.85 stop.
June DAX
The key level for the Dax going forward is from 9950/9970 as the market again traded to the top of this range before selling off aggressively after the US released its CPI, before the market stabilised and recovered to close higher. Today I will be a small seller from 9945/9965 with a 9990 stop which is just above the high made yesterday morning.
I am still short the DAX/FTSE spread in small size at 3110 with the same 3200 stop.
June FTSE
No change as I am still a seller on any rally to 6790/6810 with a 6835 stop and it will be very interesting to see how the FTSE reacts after this morning’s Bank of England Minutes from its last Meeting.
Dow Rolling Contract
The Dow just missed my 16670 buy level before spending the rest of the day trading higher. Thankfully we have not been short this market over the last two months as every dip continues to be bought. Today I will raise my buy level to 16700/16730 with a 16665 stop which is just below this week’s low. I still do not want to be short the Dow at this time.
September Bund
After the US CPI was released yesterday the Bund traded down to my 145.10 buy level. I am still long and I will leave my stop on this position at 144.75 which is just below the key support at 144.80/145.00 that I mentioned in yesterday’s commentary. A break and close below here will be bearish and could see me finally start looking to short the market. Today’s trading session might be a key day for the direction of the Bund going forward especially with the FOMC later this evening.
Gold Rolling Contract
The Gold plan worked very well yesterday as shortly after I posted it traded down to my 1260 buy level and after a nice rally I was able to cover this position at 1270 and I am now flat. Today I will again be a buyer on any dip to 1257/1262 with a 1252 stop. If I am taken long and subsequently stopped out of this position I will look to buy Gold again on any dip to 1240/1245 with a 1235 stop.
Silver Rolling Contract
No change as I am still long at 19.58 with the same 1910 stop as Silver continues to trade stronger than Gold at this time.
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