Yesterday was characterised by a further shake-out of tentatively held long US Dollar positions and short Japanese Yen positions. The Yen closed up 1.29% with USD/JPY falling to 102.00 from over 104.00 last Friday whilst the Euro spiked higher to 1.3820 yesterday afternoon before easing back overnight. US Bond Yields have eased a little further despite the fact that US stocks have recovered some of the past two days heavy losses. NASDAQ led the way, closing up 0.81%, whilst the S&P 500 and DOW closed up 0.38% and 0.06% respectively. After the close last night the first of the S&P 500 companies to report quarterly earnings, Alcoa, beat the estimates of 5 cents per share, at 9 cents, although a year ago the consensus was 20 cents.
Incoming US data is patently failing to support the US Dollar or Bond Yields. The NFIB Business Optimism rose to 93.4 versus 92.5 expected and up from 91.4 in February. In general, whilst the incoming data is suggesting the economy is picking up from the weather related weakness earlier in the year, there is not yet compelling evidence that growth is accelerating to the 3% trend level that I expect will eventually bring out a firmer US Dollar.
In the UK, Sterling’s relatively strong showing owed much to the better than expected Industrial Production number, which rose 0.9% versus 0.3% expected, with GDP looking like it will show a 1% growth for the first quarter withe the IMF revising up its UK growth forecast to 2.9% for 2014, from 2.4%, whilst keeping the US unchanged at 2.8%.
This morning on the economic front we have UK Trade Balance and the BRC Shop Price Index. Later we have the German Trade Balance whilst at 7 pm all eyes will be on the US where the Fed will release the latest minutes from its FOMC Meeting three weeks ago.
June S&P 500
The S&P rallied, as expected, yesterday as the winning Tuesday sequence continued but not before a scary drop to the critical 1830 support level first before the market turned around. My plan worked well as the market traded down to my 1836 buy level before having a very nice rally which enabled me to cover this position at 1844 and I am now flat. We still have a tiny gap from last Monday from 1857.50/1859.50 and today I will still be a small seller on any rally back to 1857/1862 with a 1866 stop. As I mentioned yesterday the 1830 level is critical for the bullish case going forward as a break and close below here opens up the possibility of a move down to the 1780 level. Today my only interest in buying the market is on a drop again to 1832/1836 with a 1827 stop. We have the FOMC Minutes from the last Fed meeting at 7 pm and I would expect a lot of volatility surrounding this release.
Euro/USD
The Euro plan also worked well yesterday as after I posted it traded up to my 1.3810 sell level and after a nice sell-off overnight I have been able to cover this position at 1.3780 and I am now flat. The 1.3820 level is critical as break and close over this level will see me look to set up a long position for 1.3940/1.3980. As I have mentioned over the last few weeks I still expect the Euro to break 1.4000 and possibly 1.4250 before long term sellers return. The fact that the market is unable to trade lower is also a factor in me not getting to bearish on the US stock market as every major sell-off in stocks over the past few years has led to a stronger Dollar. Today I will raise my buy level to 1.3750/1.3780 with a 1.3720 stop. I will also look to set up a small long position on a break of 13830 with a 1.3780 stop.
US Dollar Index
Yesterday’s rally in the Euro quickly led to me being stopped out of my long 80.20 Dollar position for a small loss at 80.00 and I am now flat. As I mentioned yesterday the Dollar is having real trouble breaking its 100 Day Moving Average at 80.60. I am still flat the Dollar and today I will lower my buy level to 79.20/79.50 with a 7880 low which is just below last November’s low.
June DAX
Given the volatility in the Dax which seems to be increasing with each passing day I am going to have to trade in smaller size with larger stops as my direction has been correct but I have been getting stopped out before the market subsequently rallies. Yesterday was a case in point as after I bought the market at 9470 I was quickly stopped out of this position for a small loss at 9435. The Dax then made a low of 9410 before turning around and traded over 100 points higher. Today I will lower my sell level to 9560/9590 with a 9630 stop as the the market has got strong resistance here. My only interest in buying the market is on a dip to 9320/9360 with a 9280 stop.
June FTSE
The FTSE has key support from 6500/6520 which is critical for the bullish case going forward. With the June Contract trading at a 45 point discount to the FTSE cash market it makes it very difficult to short the market. After I posted yesterday morning it traded down to my 6535 buy level before unfortunately stopping me out of this position for a small loss at 6510 and I am now flat. This morning the market is back trading higher and today I will again be a small buyer on any dip to 6515/6535 with a 6480 low which is just below yesterday’s low.
Dow Rolling Contract
The Dow plan worked well as after I posted it traded down to my 16220 buy level before having a very nice rally which enabled me to cover this position at 16280 and I am now flat. Yesterday the Dow was the heavier of the major US Indices, in contrast to the last three weeks, but crucially still closed over the key 16210 support level. Today I will again be a small buyer on any dip to 16190/16220 with a 16160 stop. I still do not want to be short the Dow at this time.
June BUND
The Bund is trading lower this morning and I am still a small buyer on any dip to 143.10/143.25 with a 142.88 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip to 1295/1303 with a 1289 stop.
Silver Rolling Contract
Silver is back trading below 20.00 this morning and I am still a small buyer from 19.60/19.90 with a 19.30 stop.
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