In a relatively quiet session, the impact from the Paris attacks on Global markets has been fairly muted. The US Dollar is stronger against all G10 currencies with the Euro and NZD sitting at the bottom of the leader board. European and US equity indices have managed to post small gains, but the performance of Government Bonds has been mixed. In Europe, UK Gilts and German Bunds ended the day in positive territory (yield lower) while US Treasury yields are slightly higher with the safe-haven bid fading late- on.
For anybody following my new Platinum Service it made 15 points yesterday and is now ahead by 940 points for November. The previous five months saw gains of 1600, 2833, 2195, 1810 and 3045 points respectively.
Market reaction to Friday’s terror attacks in Paris has been fairly consistent with recent history. Beyond an initial flight to safety, markets have remained fairly calm and unless we see an impact on confidence and a slowdown in growth, the market impact is only likely to be temporary. Along this line of thinking, yesterday after I posted my commentary ECB Member Praet said that the ECB is watching the Euro area confidence after the Paris attack, noting that “usually these sorts of events have transitory effect in the economy, so this is not a priori a reason to change the way we see the evolution of the European economy”.
Looking at currencies in more detail, the Euro remains under pressure back below 1.07 and the NZD has finally broken below its 0.65 support level. The move lower in the NZD appears to have been driven by a large sell order in the London session. One NZ currency strategist notes that 0.6420 is the next line of support and tonight’s Dairy Auction is the risk event to watch.
Looking at data releases yesterday, the US Empire State Manufacturing Index showed a modest improvement in November, rising to -10.7 from -11.04. While a rebound in the New Orders Index was a positive, this is the fourth month the index has remained deep in negative territory reflecting the impact from a strong Dollar in the manufacturing sector along with softer demand in Europe and Asia. The soft manufacturing theme was also evident in Canada with September Factory Sales falling by 1.5% versus forecast gains of 0.2%.
This morning on the economic front we have UK CPI, PPI and the ONS House Price Index which will all be released at 9.30 am. This is followed at 10.00 am by the latest German ZEW Current Situation. At 1.30 pm we have US CPI. Finally, the US will release Industrial Production and the NAHB Housing Market Index at 2.15 pm and 3.00 pm respectively.
Recently many Fed speakers have noted that the start of the tightening cycle is contingent upon their confidence that inflation will return toward their 2% target over the medium term. Although today’s October CPI reading is a lagging indicator of economic activity, it is still an important piece of economic evidence that can influence policy makers reading on the economy. Since October last year US Headline Inflation has been dragged lower by a decline in Energy prices and a stronger Dollar. Meanwhile the core CPI reading has been fairly steady. In September the YoY change for headline CPI was 0.0% while the core reading printed at 1.9%. Looking ahead expectations are for the headline CPI to move higher, as the impact from last year’s hefty declines in gasoline prices begins to fade. Current market consensus is for both the headline and core CPI to print at 0.2% in October. A headline CPI print in line with consensus would result in a rebound on the yoy, albeit just to 0.1%.
In Europe it’s all about central bank speeches with ECB’ Lautenschlaeger and Bundesbank’s Dombret speaking at Euro Finance week.
December S&P 500
As expected the S&P had a strong rebound which had been fluffed earlier by the weak McClellan Oscillator reading and the fact we were oversold after the 100 Handle sell-off in the S&P over the previous week. Unfortunately, shortly after the US Markets opened the S&P missed my 2011 buy level with a 2013.75 low print before the market went on to trade as high as 2052 and I am still flat. Yesterday’s rally across all the major Indices smacked of Central Bank buying as every short again got squeezed in the aftermath of last Friday’s terrorist attacks in Paris. Thankfully we had no sell levels in any of the Indices that we trade. Yesterday was another great example of how important it is to watch the Daily Bollinger Band and Williams Index as practically every time we are trading at the bottom of these indicators we tend to get at least a short term squeeze before we selling return. The S&P has strong resistance from 2050/2060 and I would expect the S&P to have difficulty in breaking this resistance initially despite yesterday’s positive trading session. Today I will look to go short from 2053/2058 with a 2063 stop. My only interest in buying the market today is on a dip lower to 2034/2039 with a 2029 stop.
EUR/USD
My Euro plan did not work out yesterday as shortly after lunch the Euro traded lower to my 1.0710 buy level. The Euro this level for most of the day before trading lower overnight which has hit my 1.0665 stop level and I am now flat. Technically the Euro looks very weak with the next major support coming in at 1.0550. Today I will again look to go short on any further move lower to 1.0555/1.0585 with a tight 1.0530 stop. Even though long term I am bullish the Euro I have to respect the price action and charts and today I will be a small seller on any further rally to 1.0740/1.0770 with a 1.0810 stop.
December Dollar Index
The continuing strength in the US Dollar overnight has also seen me stopped out of my short 99.25 position from early yesterday morning for a small loss at 99.60 and I am now flat. The Dollar has major resistance from 100.10/100.60 which is the high from last April. I am going to stay flat the Dollar today unless we break 100 where I will then look to go short again from 100.40/100.70 with a 101.10 stop. I still do not want to be long the Dollar at this time.
December DAX
The DAX has had a strong 250 point rebound from yesterday morning’s lower opening and I am still flat. Given the weakness of the Euro I would have expected the DAX to be trading higher, but from a growth perspective it is hard to be too bullish in light of last Friday’s terrorist attacks. Today I will move my buy level higher to 10660/10720 with a 10620 stop. I still do not want to be short the DAX at this time especially ahead of the Central Bank speeches later this morning as mentioned in my economic commentary above.
December FTSE
My long 6050 FTSE position worked well yesterday as the market started to rally literally as I posted yesterday morning and this enabled me to cover this position at 6110 and I am now flat. The FTSE was due a rally after last week’s dramatic sell-off which was the worst week for the FTSE since the mini crash in late August. Today I will look to sell the market on any further rally higher to 6240/6270 with a 6290 stop. Now that we have corrected some of the oversold conditions in the FTSE I do not want to be long the market at this time.
Dow Rolling Contract
Thankfully we had no sell level in the Dow yesterday as yet again every short got hammered with yesterday’s near 400 point rally from the low print made shortly after the open last Sunday night. I am still flat the Dow and today I will look to go short in small size on any further rally higher to 17560/17610 with a 17650 stop. I will also look to buy the Dow on any dip lower to 17290/17340 with a 17250 stop.
December BUND
The BUND plan worked well yesterday as shortly after I posted the BUND was still trading at my 157.25 sell level before selling off after the Equity markets started to rally which enabled me to cover this position at my T/P level at 156.90 as outlined earlier to my Platinum Members and I am now flat. Despite the Equity market rally the BUND is testing key resistance at the 157.30/157.50 area this morning, a break of which could well lead to a test of the major resistance at 159.50/160.50. Today I will look to buy the BUND on any dip lower to 156.70/157.10 with a 156.40 stop. Despite me been long term bearish the BUND I do not want to be short the market at this time.
Gold Rolling Contract
Gold has quickly reversed its safe haven status that prevailed early yesterday morning. This move lower has hit my 1078 buy level. I am only long in small size as I am conscious of how strong the Dollar is and today I will leave my stop the same at 1069.
Silver Rolling Contract
No change as I am still long at 14.36 with the same 13.95 stop.
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