Yesterday’s action was initially dominated by news out of China whereas usual this news started before we awoke yesterday morning. The PBoC continued with its drip-feed devaluation, setting a Yuan reference rate of 6.5646. This amounted to a 0.51% devaluation for the day, greater than the cumulative decline over the previous two days and the largest daily move since the August 2015 shock devaluation.
Traders noted that the Chinese Government was active in the offshore market, trying to hold up its currency. Data later in the day showed that China’s FX reserves were down a record $108bn to $3.33 trillion, suggesting ongoing sizeable capital outflows.
For anybody following my new Platinum Service it had its best trading date since I started this service generating at least a 617 point gain and is now ahead by 1217 points for January. The previous seven months saw gains of 2065, 1510, 1600, 2833, 2195, 1810 and 3045 points respectively. If anyone is interested in my Platinum Service which includes up to five updated emails throughout the day please check out the membership link on my tradernoble website.
China’s stockmarket remained in free-fall and trading was suspended after 29 minutes, having reached the minus 7% threshold for the CSI-300 index. This morning it had been confirmed that China’s Securities Regulator has now suspended the circuit-breaker, which should avoid panic selling by investors for fear of being locked out of trading, but it will not avoid the fact that China’s stock market is amongst the world’s most expensive, the macroeconomic fundamentals are deteriorating and investors have been spooked by the incessant fudges to the market by the regulators. Earlier yesterday, the regulator imposed fresh rules on how large shareholders can exit positions, including giving a 15 day notice period of an intention to sell. Enough said.
Meanwhile, commodity prices continued to tumble. Brent crude oil prices plunged towards the $32 mark yesterday moring and almost made it (a near 12-year low), before staging a recovery to $34. Copper prices were also particularly hard hit, falling by 2.4%. Amongst the sea of red prices, Gold was an outlier, rising by 1.5% and blasting through the $1100 handle, as investors sought this traditional store of value.
Equity markets continued to fall, with European bourses down in the order of 2% and the S&P500 down over 2%. China’s big fall flowed through into Asian markets, with the Hang Seng index particularly hard hit, registering a fall of 3.1%.
In the currency space, for once it was not the Yen leading the way, although it continued to show strength. USD/JPY trades at 118.30 this morning, having traded as low as 117.33 yesterday. The Euro has been one of the best performing currencies on the day, with EUR/USD trading up 1.2% to 1.0910. There was not much global data yesterday but the minor releases were Euro-positive. Euro-area economic confidence (EC survey) rose more than expected to 106.8, its highest level since April 2011 while the Unemployment rate fell to 10.5%, its lowest in 4 years.
Pound sterling continued its weak run, with GBP/USD down 0.2% to 1.4600, after earlier reaching its lowest level since 2010. Weaker manufacturing and services PMI data earlier this week are encouraging a pushing out of expectations of when the BoE will begin its tightening cycle, while the forthcoming referendum on Britain’s membership of the EU still overhangs the market.
The CAD had a wild night, trading at a 12-year low. CAD/USD reached a high of 1.4170 before screaming lower to 1.4051 and over the whole day is fairly flat.
Despite the risk-off mood and Asian currencies being hit, the NZD was surprisingly robust. It is only down slightly against the USD, trading at 0.6630. Earlier this morning it fell to 0.6591, but it seemed to meet some resistance at that level and has recovered.
The AUD was the worst performing major currency, down 1% to 0.7000, having traded down to 0.6981 Llast night before rebounding to .7030 this morning. The underperformance likely reflects its closer association with China’s economy and the weaker industrial commodity prices.
Despite all the turbulence in equity, commodity and currency markets, the US Treasury market remains fairly sleepy, with rates remaining in a tight trading range. The 10-year rate is down 1bp at 2.16%, having traded in a range of 2.12-2.20%. The 2-year rate has now moved more decisively below the 1% handle at 0.96%. Investors seem to have become more confident that the tightening cycle will be much more gradual than indicated by the FOMC.
Overnight the Shanghai close over 2% higher but is still down over 9% for the week. Despite the positive news from China which is filtering into the European markets this morning the Nikkei still closed 0.4% lower at 17700.
This morning on the economic front we already had the release of German Industrial Production which printed weak at -0.3% versus +0.5% expected. At 9.30 am we have the UK Trade Balance. This is followed at 1.30 pm by the main data event of the week namely the US Non-Farm Payrolls where the consensus is for a rise of 200K. As usual my main interest in this data will be the revisions to previous months plus Average Earnings which so far have failed to ignite despite the strong numbers over the past two years. Finally we have Wholesale Inventories and Consumer Credit at 3.00 pm and 8.00 pm respectively.
March S&P 500
Thankfully by the time that I posted yesterday morning my long 1952 S&P position had already been stopped out at 1945 so you could not have seen this trade. Subsequently shortly after I posted the S&P traded lower to my 1932 buy level before having a nice 38 Handle rally which enabled me to cover this position at my 1942 T/P level. After lunch I emailed my Platinum Members to buy the S&P again at 1941 with a 1930 stop and that if I was stopped out to use my 5 Handle Rule to re-buy with no T/P level initially as I fancied the Shanghai market to rebound overnight. After I was stopped out of this position I bought the S&P again at 1934 and after a nice rally overnight I have been able to cover this position at my 1957 T/P level this morning and I am now flat. As usual when we have NFP day I will stay flat until we get the data. This morning’s huge move higher has left another potential gap to last night’s close at 1934. We still have ‘Open Gap’s on the upside from this week at 1994/2010 and 2012/2035.50. As expected yesterday’s down gap was entirely filled when the US market opened as if you sell weakness in the S&P you will get stopped out. Finally the McClellan Oscillator has started to weaken with last night’s close at -180. Remember a close below -250 will see me start to put on a more long term bullish position. To add to the mix we have the January Options Expiration next Friday and traditionally whatever low is put in yesterday/today tends to be the low print ahead of this event. Today I will look to buy the S&P again on any dip lower to 1036/1043 with a 1029 stop. Again if I am taken long and subsequently stopped out of this position I will use my 5 Handle Rule to go long again with a stop below whatever new low is printed.
EUR/USD
Finally my view that the Dollar will weaken this year is starting to happen. I am still flat the Euro and today I will raise my buy level to 1.0770/1.0820 with a 1.0740 stop.
March Dollar Index
I am still flat the Dollar and today I will lower my sell level to 99.30/99.60 with a 99.90 stop.
March DAX
The DAX plan worked very well yesterday as shortly after I posted the DAX traded lower to my 9820 buy level before having a nice rally which enabled me to cover this position at my 9870 T/P level. Subsequently I bought the DAX again at 9820 and I covered this position on the open this morning at 10000 and I am now flat. The sell-off in the DAX over the past week has done a lot of technical damage to the market. However the DAX is rebounding strongly this morning and a break and close over 10100 will be short term bullish. Today I will again look to buy the market on any dip lower to 9900/9975 with a 9860 stop. I still do not want to be short the DAX at this time.
March FTSE
Thankfully by the time I posted yesterday morning you should have been able to buy the FTSE a lot cheaper than my initial long at 5865. Subsequently after I posted the FTSE traded lower to 5830 before having a nice rally which enabled me to cover this position at my 5895 T/P level. Just before the New York close I bought the FTSE again at 5855 as outlined earlier to my Platinum Members and I covered this position this morning at my 5920 T/P level and I am now flat. Today I will again look to buy the FTSE on any dip lower to 5870/5910 with a 5845 stop. Given how oversold the FTSE is trading I do not want to be short the market at this time.
Dow Rolling Contract
The Dow plan also worked very well yesterday as shortly after I posted the Dow traded down to my 16495 buy level before having a nice 250 point rally which enabled me to cover this position at my 16580 T/P level and I am now flat. I will stay flat the Dow until we get the NFP at 1.30 pm and if the Dow trades lower to 16540/16620 I will look to buy the market with a 16490 stop. Naturally after the huge sell-off over the past week I do not want to be short the Dow at this time.
March BUND
My short 160.15 BUND position also worked well yesterday as by the time I posted the BUND was trading at my sell level before having a nice 100 point sell-off which enabled me to cover this position at my 159.75 T/P level and I am now flat. As I mentioned yesterday any rallies over 160 are going to be hard to sustain given the amount trapped long positions above this level. Today I will again look to go short on any rally higher to 159.70/160.10 with a 160.30 stop which is just above yesterday’s high print.
Gold Rolling Contract
Gold is still overbought and today I will leave my buy level unchanged at 1066/1075 with a 1059 stop.
Silver Rolling Contract
My long 13.92 Silver position finally worked out yesterday as I was able to cover this position at my 14.10 T/P level. Subsequently I bought Silver again at 14.19 with a 13.80 stop.
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