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ECB Head Draghi ignites Markets with Call for Action

06/18/2019 11:38 am EST

Focus: MARKETS

Bill Baruch

President and Founder, Blue Line Futures

Major markets jumper overnight after comments from ECB President Mario Draghi, reports Bill Baruch, President of BlueLineFutures.com.

E-mini S&P (ESU)

Yesterday’s close: Settled at 2896.25, up 1.50

Fundamentals: U.S benchmarks roared higher early this morning after ECB President Mario Draghi called for policy action if inflation and economic conditions don’t improve. His comments came an hour before a pair of dismal economic numbers; German ZEW Sentiment was a massive miss at -21.1 versus -5.1 expected and CPI data was overall soft with the Core monthly read at -0.1%. Expectations are mounting for dovish central bank action and Draghi lit a fire under markets just as the Fed drift typically gets underway. Although the Federal Reserve is not expected to cut rates tomorrow, there is now a 29.2% probability, the highest odds yet. More importantly, markets have essentially priced-in a cut by the July 31 meeting. With such lofty expectations, the Fed must telegraph an upcoming cut tomorrow at the very least. Simply put, exuding patience won’t be enough anymore.

Yesterday’s NY Empire State Manufacturing data certainly did not give the Fed a reason to change their market-determined path. It worsened for the first time in over two years and came in at the lowest level since May 2016. Additionally, this looks to be the biggest whiff since August 2015. Building Permits and Housing Starts are due at 7:30 am CT and ECB President Mario Draghi is due to make additional comments at 9:00 am CT.

Facebook (FB) is leading the NQ higher and after gaining 4.24% yesterday on news it will develop a cryptocurrency, it has tacked on another 1.5% premarket. Although the Libra won’t be owned by Facebook, the innovation behind a team of high-flying tech names is certainly making headlines. Another leader this morning is beleaguered Boeing. Despite subdued headlines reading that Boeing has yet to take any new orders at the Paris Air Show, the stock gained 2.23% yesterday and is adding 1.25% premarket this morning.

Technicals: The September S&P is testing its June 11 high while the NQ has cleared its mark set that day. While we remain bullish, we must stay merely cautiously optimistic as the market prices in fairly lofty central bank expectations amidst a deteriorating economic backdrop. Nonetheless, the technicals are very bullish and we have pointed out since last week the developing bull-flag pattern that is now coming to fruition and feeding a breakout above resistance levels.

Crude Oil (CLQ)

Yesterday’s close: Settled at $52.17, down 0.60

Fundamentals: Crude spiked overnight along with equity markets after ECB President Mario Draghi called for policy action amidst soft inflation. This is a reminder that traders should keep a pulse on equity markets as central banks will control the news flow over the next 24-36 hours. Although that spike dissipated, price action is attempting to build a floor ahead of inventory data and as tensions remain high in the Middle East. Crude’s failure to rally on those escalating tensions with Iran and with OPEC+ 1 planning to extend their production pact speaks volumes of how fearful market participants are of bloating U.S supplies, rising U.S production and deteriorating economic conditions due to the trade war. The private API survey is due at 3:30 pm CT. Stay nimble upon this news flow.

Technicals: There are multiple layers of strong support below the market which held through yesterday.

Gold (GCQ)

Yesterday’s close: Settled at $1,342.9, down 1.6

Fundamentals: After weak action Sunday night, a dismal read on NY Empire State Manufacturing helped gold dig out of its hole. Price action has capitalized on ECB President Mario Draghi calling for rate cuts amidst slow inflation. The metal finds itself in a very favorable landscape amidst mounting expectations for central bank action. However, we must now see the Federal Reserve telegraph a rate cut if we do not see one tomorrow. It would seem that strength in the equity market and the Dollar due to weakness of its pairs are the only two components holding Gold back from further gains.
Technicals: After holding our pivot on a settlement basis yesterday, price action is attempting a rally this morning.

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.

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