Fed Chair Janet Yellen came and went last night, and in truth markets are not a whole lot wiser on the question of when the Fed is likely to start normalising monetary policy. That said markets do not lie, and the ‘Bond Market Vigilantes’ that are Wall Street’s Treasury traders have seen fit to push 10-year yield back below 2% to 1.98% from 2.13% on Monday, while an initial back-up in shorter end yields has been more than reversed as shown by the 2 year note which is back trading at 0.56% from 0.64% before she began her Testimony.
These moves in turn have seen initial support for the US Dollar as Ms Yellen began her Testimony, more than reversed, while the S&P 500 has pushed on to a new record closing high with a 0.25% gain to 2115. These moves in both Bonds and stocks are all consistent with increased doubt that the Fed will make a first rate move as early as June.
As for the Testimony, Ms Yellen waxed fairly lyrical about the ongoing strengthening in the labour market, including referencing the strong January Payroll print, and made nothing of the softer incoming data since the start of the year outside the labour market. She was also quite adamant that weakness in inflation was largely the result of transitory factors such as Oil. On the ‘patience’ language she used current tense to describe the FOMC’s view that while ‘patient’ remains in the Fed’s lexicon, rate rises are unlikely for at least the next couple of Meetings. But she went on to say that while dropping the word ‘patient’ would not necessarily imply that the Fed would act in a couple of Meetings. And in the subsequent Q&A, she went to great lengths to stress how accommodative policy was, in response to calls from various Congressmen to wait for evidence of stronger wage pressures before acting, saying she did not want to be tied to any one indicator.
Elsewhere yesterday the Euro Group signed off on Greece’s reform, though both the IMF and the ECB sent letters to Euro Group Chairman Jeroen Dijelbloem expressing their reservation. No matter, the four month extension looks like being ratified following the nods from six National Parliaments this week.
This morning on the economic front we have no data of note due from either the UK or the Euro-Zone. At 3.00 pm the US will release New Home Sales, while at the same time Fed Chair Janet Yellen Testifies to the House Financial Services Committee. Later at 4.30 pm ECB President Dragi Testifies to the European Parliament in Brussels.
March S&P 500
For the second consecutive trading session the S&P traded in a very narrow range despite Fed Chair Yellen’s Testimony to the Senate. None of my parameters were hit again yesterday and I am still flat. As I am already short both the Dow and FTSE, and given the fact we have Ms Yellen’s Testimony to the House I am going to raise my sell level today to 2121/2126 with a 2131 stop. I will also raise my buy level to 2103/2108 with a tight 2098 stop.
EUR/USD
The Euro plan worked out very well as just before Ms Yellen began her Testimony to the Senate the Euro spiked lower to my 1.1290 buy level before having a nice rally which enabled me to cover this position at 1.1340 and I am now flat. The idea of buying the Euro on dips continues to pay dividends and today I will raise my buy level to 1.1290/1.1330 with a tight 1.1260 stop. I still do not want to be short the Euro at this time.
US Dollar Index
My short 94.90 Dollar Index position from Monday worked out very well with the Dollar back trading at the 94.20 level this morning which has enabled me to cover this position at 94.30 and I am now flat. Today I will keep my strategy of selling rallies in the Dollar and today I will again be a small seller on any rally higher to 94.65/94.95 with the same 95.30 stop.
March DAX
After Ms Yellen’s Testimony to the Senate yesterday the DAX spiked higher to my 11220 sell level with an 11232 high. Due to the fact that I am currently short both the FTSE and the Dow I have decided to cover this position this morning at 11200 as I want to be flat the DAX ahead of Ms Yellen’s Testimony to the House this afternoon. My only interest in selling the DAX is on a further spike higher to 11280/11320 with an 11360 stop. I still do not want to be long the DAX at this time despite the positive price action over the last six weeks.
March FTSE
The FTSE plan also worked out very well yesterday as the FTSE had a nice rally which enabled me to cover my long 6855 position at 6895. Subsequently the FTSE traded higher to my 6910 sell level. I am still short and today I will leave my stop the same at 6950 on this position. Again I will be a buyer on any dip lower to 6840/6865 with a 6825 stop.
Dow Rolling Contract
Thankfully I covered my short 18090 position for a small loss at 18115 yesterday morning as the idea of going flat ahead of Ms Yellen’s Testimony proved to be the correct decision. Subsequently the Dow again rallied with the market eventually hitting my 18200 sell level. I am still short and today I will leave my stop the same at 18250. If I am stopped out of this position I will be a more aggressive seller in front of 18320 with a 18370 stop. Again the fact that we have seven Hindenburg Omen signals on the clock so far in 2015 I do not want to be long the Dow at this time despite the positive price action.
March BUND
My short 159.00 Bund position from Monday worked out very well yesterday as shortly before Ms Yellen began her Testimony the Bund was trading near the lows of the trading session which enabled me to cover this position at 158.60 and I am now flat. This morning the Bund is opening up as it follows the US Treasury market higher. Today I will again be a small seller on any further rally to 159.25/159.50 with a 159.70 stop. If I am taken short and subsequently stopped out I will be a more aggressive seller in front of 160.10 with a 160.40 stop.
Gold Rolling Contract
Gold just missed my 1188 buy level before trading higher and I am still flat. Today I will raise my buy level to 1195/1202 with a 1183 stop.
Silver Rolling Contract
No change as I am still long at 16.20 with the same 15.70 stop. Again if I am stopped out of this position I will be a more aggressive buyer in front of 15.40 with a 14.90 stop.
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