Opinion – Wednesday 29 October 2014

The US Dollar is soft heading into tonight’s key FOMC announcement however as of now there is no press conference scheduled, with Janet Yellan, but this can change as we get nearer the release. Reasons for the softer Dollar came from a weaker than expected reading from the September US Durable Goods Orders Report and continuing softness in the Case Shiller House Price Index. Not even a stellar reading from the Conference Board’s measure of Consumer Confidence for October could invoke Dollar buying, but the selling did ease.

The upshot this morning is that the likes of the Euro, Sterling and Australian Dollar have made some net gains against the Dollar. Sterling has regained earlier losses after the Bank of England’s Cuniffe said that the MPC needs clearer pay growth signals before tightening, backing up similar dovish tones from Deputy Governor Shafik on Monday. US Durable Goods Orders fell 1.3%, below the 0.5% expected, with core orders down 1.7% also shy of the consensus 0.7%. Core Orders have flatlined since June amid a good story for Business Investment overall this year. Meanwhile Consumer Confidence jumped a full 5.5 points to 945 which is the highest level since October 2007. US Stock Indices closed another 1.25/1.75% higher.

This morning on the economic front the only of data of note due out of Europe is UK Mortgage Approvals at 9.30 am. This is followed at 6 pm by the FOMC Rate announcement when QE is expected to cease. The markets have built a lot into this announcement given the massive rally that equities have had over the past two weeks despite some very weak economic data.

December S&P 500

The mantra of ‘never be short the US stock market in the week of an FOMC Meeting’ has certainly proved to be the case again this week with markets continuing its relentless move higher from its low made two weeks ago when incredibly the S&P was trading at 1812. The Fed are doing everything they possibly can to keep this market from falling. The McClellan Oscillator which closed at +217 on Friday before falling back, as expected, on Monday again closed over 200 yesterday making me nervous of being long the market at these levels ahead of tonight’s announcement.

Yesterday the S&P plan worked well as after I posted the market was trading at my 1968 sell level before having a small sell-off after the weak Durable Goods Orders Report which enabled me to cover this position at 1963 and I am now flat. I was very surprised by the late rally as traders must really be expecting something favourable from the Fed this evening. I am going to stay flat until we get the Fed Statement and if the markets rally subsequently I will be a seller from 1985/1995 with a wider 2001 stop. If I am taken short and subsequently stopped out I will use my 5 handle rule to go short again with a stop above whatever new high is put in. Given how overbought this market is I do not want to be long the S&P at this time.

Euro/USD

The Euro rallied as expected yesterday with the market trading at my 1.2760 sell level by the time I posted. As I am already long the Dollar Index and the fact that I want to be flat the Euro ahead of tonight I covered my short position at 1.2730 and I am now flat. Today I will again be a small seller on any rally to 1.2795/1.2845 with a 1.2875 stop. I still do not want to be long the Euro at this time.

US Dollar Index

The Dollar finally traded lower after I posted yesterday to my 85.30 buy level. I am still long and I will leave my stop the same at 84.85.

December DAX