It has been a very eventful past two trading sessions for the Australian Dollar, which sits atop the major FX leader board, trading at 0.7950 in early trade this morning. The reaction of the AUD immediately after the RBA Statement said it all. The AUD only briefly jagged lower, only to just as quickly rebound and more, trading up from 0.7850 before the RBA announcement to 0.79 before consolidating in the local session in the higher 0.78s. It was the removing of the easing bias altogether and acknowledgement that the cut reinforced ‘encouraging trends in household demand’ that saw AUD buying return. And while the RBA’s wording on the AUD was changed, it was really more tweaking than substance. Instead of ‘a lower exchange rate is likely to be needed’, it was ‘further depreciation seems to be likely and necessary’, a little stronger in tone but the same meaning.
When the US printed a much higher Trade Deficit in March (which might also see Q1 GDP revised to negative) the US Dollar lost ground. Along with other majors both the EUR/USD and the AUD/USD surged again. The Trade Report saw the Atlanta Fed’s’ Nowcast’ of Q2 GDP steady at 0.8%, well below the Blue Chip Consensus of 3.2%. It is early days in the Quarter and the fact that the record 7.7% Import rise in March reflected the unlocking of import flows after the West Coast Port shutdown should see imports settle back and the Trade Deficit be more growth supportive.
The US ISM Non-Manufacturing though printed higher with the April Index coming in higher than expected which also included New Orders. Even so, the US Dollar was unable to make up some lost ground while US Treasuries did.
Somewhat unsettled investor sentiment was not helped by more Greek news, this time on reports the IMF may be cutting a funding line unless more debt write-downs are agreed by the Europeans, according to a Financial Times Report. This hit the German DAX badly which closed 2.5% lower.
This morning on the economic front we have Euro-Zone Services PMI and Retail Sales which are due to be released at 9.00 am and 10.00 am respectively. Before these Retail Sales are released we have CIPS UK Services PMI at 9.30 am. This afternoon is a very busy on for US data. First up at 1.15 pm we have the ADP Employment Change where the expectation is for a 185K rise compared to last month’s 189K. This is followed at 1.30 pm by Non-Farm Productivity and Unit Labour Costs. At 2.15 pm Fed Chair Yellen speaks to a panel in Washington. Finally the Fed’s George and Lockhart are due to speak on Monetary Policy at 6.15 pm and 6.30 pm respectively.
June S&P 500
There is no doubt the S&P has been difficult to trade over the past few weeks as every-time we have a sell-off, the markets get bought. Today the big question is whether the S&P is going to come back from yesterday’s drubbing. The strong Euro over the past three weeks has seen the German DAX loose its shine with the market now over 1000 points lower since the Euro finally started to rally, while in contrast the weaker Dollar has led to the S&P out-performing the other Indices. Yesterday after the US markets opened the S&P got hit hard with the market eventually hitting my 2092 buy level before having a small rally following the release of the better than expected ISM data which enabled me to cover this position at 2096 and I am now flat. However the market had a nasty sell-off into the close and this is a theme that has occurred more often than not over the past two weeks. As I mentioned on Monday the S&P needs to break and close below 2070/2075 and then 2035/2040 before we can safely say that we have at least a temporary top in the market and as we have seen already over the past six months what happened to Oil and more recently the German Bund when this process starts. Today I will be a small buyer on any further dip to 2071/2076 with a 2067 stop. Given the extent of yesterday’s breakdown I will move my sell level lower to 2091/2096 in small size with a wider 2101 stop.
EUR/USD
The Euro plan worked out very well yesterday as shortly after I posted the Euro traded lower to my 1.1110 buy level before having a very nice rally which enabled me to cover this position at 1.1180. This morning the Euro has continued to rally with the market hitting my 1.1260 sell level. I am still short but despite how overbought the Euro is trading I will lower my stop on this position to a tight 1.1285. If I am stopped out of this short position I will be a more aggressive seller in front of 1.1330 with a 1.1360 stop.
June US Dollar Index
The Dollar plan also worked well over the past 24 hours with both my buy and sell levels getting hit. Shortly after I posted the Dollar traded higher to my 96.00 sell level before having a nice sell-off which has enabled me to cover this position at 95.40. Earlier this morning the Dollar traded lower to my 94.85 buy level and I am still long. I will move my stop level higher on this position to 94.50.
June DAX
There is no doubt that since the Euro started to rally against the US Dollar it has made trading the DAX especially difficult, and yesterday was no exception, as my DAX plan did not work out. Shortly after I posted the DAX traded lower to my 11490 buy level before stopping me out of this position at 11420 and I am now flat. Already this morning we have seen wild swings in the DAX with the market hitting a low of 11315 before rebounding nearly 100 points. Given how oversold the DAX is trading and the fact that I expect the Euro to have difficulty in breaking higher from here I will again look to buy the DAX on any dip lower 11290/11330 with a 11255 stop. I still do not want to be short the DAX at this time.
June FTSE
My short 7010 sell level from early yesterday morning worked out very well with the market getting nervous as to the outcome of tomorrow’s General Election. Shortly after I posted the FTSE continued to trade lower which enabled me to cover this position at 6940 and I am now flat. Today given how oversold the market is I will be a small buyer on any further dip to 6810/6860 with a wider 6750 stop. I do not want to be short ahead of tomorrow’s Election result.
Dow Rolling Contract
I am still flat as the market just missed my sell level yesterday after I posted. The fact that we still have the confirmed Hindenburg Omen’s on the clock still makes me very nervous to be long the Dow. There is no doubt that the US economy is slowing and so far this has not been reflected in the stock markets which are extremely overvalued at these lofty levels. For these reasons I will lower my sell level to 18010/18060 with a wider 18120 stop.
June BUND
My Bund plan did not work out so well yesterday as the Bund get slammed again to the downside. Incredibly the Bund is now over 600 points lower since its highs made just last month. Shortly after I posted yesterday morning the Bund traded lower to my 155.30 buy level before stopping me out of this position on the open today at 154.70 and I am now flat. The Bund is trading outside the bottom of its Bollinger Band and at the bottom of its Williams Index. For these reasons I will again look to buy the market on any further dip to 154.00/154.40 with a 153.70 stop.
Gold Rolling Contract
This morning Gold is trying to rally on the back of the weaker Dollar. I am still flat and today I will raise my buy level slightly to 1178/1186 with an 1172 stop.
Silver Rolling Contract
No change as I am still long at 16.40 with the same 15.90 stop.
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