Welcome to Friday the thirteenth. Caution is advised for anyone suffering from triskaidekaphobia. But anyone thinking ECB President Mario Draghi was going to be cautious in his comments about the potential for further easing actions on 3 December was very quickly disabused of that notion. EUR/USD quickly fell back below 1.07 on Draghi’s comments that “downside economic risks are clearly visible… inflation dynamics have somewhat weakened… and if price stability is at risk, we would act by using all the instruments available within our mandate.” The surprise perhaps is that the break back below 1.07 was not sustained.
For anybody following my new Platinum Service it made 170 points yesterday and is now ahead by 745 points for November. The previous five months saw gains of 1600, 2833, 2195, 1810 and 3045 points respectively.
Here, there looks to be a now familiar cycle in train, whereby a (Euro-driven) rise in the US Dollar produces fresh weakness in Commodity prices which then weighs on the Energy Sector and pulls the broader Indices into the red. The S&P 500 closed down about 1%. And, as we have noted on various occasions this year, with the Euro now the pre-eminent funding currency for risk- taking, when investors rush to unwind risk trades, the single currency can often be a beneficiary as the funding currency is repaid.
Also relevant to the sell-off in Commodities and Oil (the latter unrelated to the mirth in the Twitter-sphere surrounding the news that the Saudi Arabia is now to be ruled by King Salmon) is the latest China loan data. This showed new CNY loans slumping to Y514bn from Y1050bn in September, with broad ‘Total Social Financing’ credit growth even weaker at 477b down from 1302bn. There is a suggestion this is partly related to local Governments switching to cheaper forms of (bond) finance, but the news has nevertheless played to concerns about aggregate demand and Commodity markets did take notice. Gold slumped to $1074, its lowest levels since early February 2010, before undergoing a bungee-jump style $15 spike in a less than a minute, when more than $500mn worth of Gold futures changing hands. The rally was quickly sold.
On the Fed speaker front, it would almost be quicker to list who didn’t speak last night, and while most were on-message regarding prospects for December rates ‘lift-off’ (Bullard, Lacker, Dudley and even Evans) the fact Fed Chair Yellen made no comment about policy in opening remarks at a Fed Policy Conference saw some jumping to the view that this meant a move next month is still not a done deal.
As for economic data, Weekly Initial Jobless Claims held up at 276k, above the 270k expected but the JOLTS report saw a surge in job openings, to 5.526mn. from a revised 5.377mn in September.
This morning on the economic front we have German GDP at 7.00 am. This is followed at 10.00 am by Euro-Zone GDP and Trade Balance. At 1.30 pm we have US Retail Sales and this number will have taken on added significance after the sell-off in US Stocks yesterday. PPI will also be released at 3.00 pm. Finally at 3.00 pm we have the University of Michigan Consumer Sentiment and Business Inventories. At 5.30 pm the Fed’s Mester will speak on Economic Outlook and Monetary Policy.
December S&P 500
My fears that the 2060 support level would eventually get broken proved to be correct yesterday as the market fell over 45 Handles from when I posted early yesterday morning. Thankfully after the market dropped to my 2066 buy level we had a quick rally to 2071 which enabled me to cover this position at my 2070 T/P level as outlined earlier to my Platinum Members and I am now flat. As most of you know at this stage I have been in Florida for the past four weeks and there is no doubt in my opinion the US is slowing down and on the verge of going back into recession. If the Fed raise Interest Rates next month this could well be the catalyst and as you know I really believe the US Dollar is totally miss-priced by the market and to me it is only a matter of time before we head back to the 1.15/1.20 level against the Euro. The internals have not participated in this stock rally over the past six weeks. However I am reluctant to chase this market lower especially with the intervention to prop up the stock market by the Central Banks. Today my only interest in selling the S&P is on a rally higher to 2054/2059 with a 2064 stop as the 2060 level should act as good resistance. I will be a small buyer on any further drop to 2026/2032 with a 2021 stop.
EUR/USD
The idea of buying dips in the Euro continues to pay dividend as again once the Euro broke 1.07 we had a quick 120 point rally. Yesterday’s move lower saw me buy the Euro at 1.0705 but unfortunately I emailed all my Platinum Members to T/P on this position too early at 1.0735 as we were long both Gold and Silver at the same time. Today I will again look to buy the Euro on any dip lower to 1.0730/1.0760 with a 1.0705 stop. Naturally I do not want to be short the Euro at this time.
December Dollar Index
Just before the New York close last night the Dollar hit my 98.50 buy level. I am still long and today I will raise my stop to 98.20 on this position. I will still be a seller on any rally higher to 99.20/99.50 with a 99.80 stop.
December DAX
Finally after a frustrating few days trying to get a long position on board the DAX traded lower to my 10750 buy level before having a nice 100 point rally which enabled me to cover this position at my 10820 T/P level as outlined earlier to my Platinum Members and I am now flat. Today my only interest in buying the DAX is on a further dip lower to 10550/10610 with a 10495 stop. Despite the negative price action over the past few days I do not want to be short the market at this time.
December FTSE
The FTSE continues to be the main driver for lower stock markets and thankfully although we have not had a chance to get short, we have not been long the market for this 300 point sell-off over the past few trading sessions. This morning the FTSE is trading outside the bottom of its Bollinger Band and at the bottom of its Williams Index meaning we should be on the lookout for a temporary bounce in the market. Today I will look to buy the market on any further dip lower to 6085/6115 with a wider 6050 stop. Given how oversold the FTSE is trading I do not want to be short the market at this time.
Dow Rolling Contract
I have been correct in calling this market to trade lower but just like the FTSE above we have not been able to get a decent low risk short position on board and I am still flat. The Dow has fallen nearly 600 points over the past week and thankfully we have not got caught long this market. Despite this sell-off in the Dow the market is not oversold after its near 2000 point rally following the October NFP Report. Today I will lower my sell level to 17610/17670 with a 17725 stop but only in small size.
December BUND
Despite the Equity sell-off yesterday, surprisingly the BUND traded in a very narrow range. I am still flat the BUND and today I will use any rally higher from 157.10/157.40 to go short with a 157.70 stop.
Gold Rolling Contract
The Gold plan worked really well yesterday as the market had a nasty sell-off shortly after the US Markets opened which saw me go long at an average of 1079 before we had a nice $16 rally which enabled me to T/P on this position at 1089 as outlined earlier to my Platinum Members and I am now flat. The big question was yesterday’s 1074 low print a tradeable low or are we going to test this level again before trading higher. Today I will again look to buy the market in small size from 1072/1079 with a 1067 stop.
Silver Rolling Contract
No change as I am still long at 14.36 with the same 13.95 stop.
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