Ahead of a long weekend in the UK and the US, risk assets enjoyed a mildly positive Friday trading session, with the US Dollar closing stronger across the board as US Treasuries ended the day higher across the curve. In her much awaited Harvard University appearance, Fed Chair Yellen endorsed recent Fed rhetoric, noting that it would be ‘appropriate’ for the Fed to raise the Funds Rate if economic growth picked up as expected and the labour market continued to improve.
To mark my 1075th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2500 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested please email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 70 points on Friday and is now ahead by 1302 points for May having made 2175 points in April. The previous two months saw the same gain of 2265 points for both February and March following a record 3365 point gain in January. Since I started this service last June it has made over 25,000 points.
US economic data releases for last Friday were also risk supportive. Revision to the US Q1 GDP number came in just under expectations at 0.8% versus the 0.9% expected, but encouraging corporate profits showed signs of stabilizing and the final May Reading of the University of Michigan Consumer Confidence Index posted its highest level since January 2007 at 94.7 which was nearly six points higher than the April reading.
The Euro Stoxx Index ended 0.25% higher while in the US the S&P 500 closed 0.43% higher on what was probably the slowest week of trading in many a month. Ahead of Ms Yellen’s appearance oil prices drifted lower, but post Yellen they staged a mini rally, ending the day practically unchanged. WTI closed at $49.4 and Brent at $49.33. Other Commodities had a mixed session with Gold getting hit again overnight as we now test the $1200 level.
Initially Ms Yellen sounded dovish noting that the US economy has been in slow recovery while metrics suggest there is still slack in the labour market. Following these opening remarks, the US Dollar was weaker across the board, however when she was specifically asked about the cash market outlook, Yellen noted that a Fed rate hike in coming months ‘may be appropriate’ if the economy and labour market continue to strengthen. This comment triggered a US Dollar rally across the board, with USD/JPY trading at 110.45 and the EUR/USD dropping to 1.1111. At the end of the New York session the Dollar ended the day stronger against most currencies and at the top of its intraday ranges.
Looking at the price action across markets over the past week, it is probably fair to say that not much is different. Pricing expectations for rate hikes this year are little changed, a week ago the OIS Market had 6bps of hike priced for June and now the market is at 5.7bps, July is up a little at 15bps from 14bps, but December is a bit lower at 27bps compared to 29bps. The US Dollar is alos little changed with the BBDXY Index up 0.3% for the week.
In equities, while the Shanghai Composite and Nikkei were little changed, European and US Indices posted gains between 2% and 3% for the week. One could argue that the positive tone to US equities over the past week appears to be reflecting a growing perception that the US economy can cope with a gradual rise in the Fed’s Funds Rate.
This morning on the economic front we have Euro-Zone Business Climate Indicator, Consumer Confidence and the OECD Economic outlook at 10.00 am. This is followed at 1.00 pm by German at 1.00 pm. With the US and UK markets closed today we have no other economic data of note due.
June S&P 500
I taught last Thursday’s trading session was slow until Friday came along as we waited for what seemed to be a never ending time line until Ms Yellen spoke at Harvard. This resulted in eventually seeing the S&P have a small rally into the close before continuing this rally on the re-open of the Futures market last night which saw me go short the S&P at 2103. I am still short and I will now raise my stop on this position to 2109. With the US Cash S&P closed today and the Futures market only open for a limited time I would not expect to see too much volatility today. The S&P is trading at the top of its Daily Bollinger Band and Williams Index and has a lot of resistance between here and the contract high from 2015 at 2134. The market needs to break this 2134 level for me to get excited as a break and close over this level could well see the S&P trade as high as 2200/2240 over the coming months. Remember from last week’s gap higher we have two ‘Open Gap’s from 2046/2056 and 2076/2086 and given how overbought the market is trading I would not be surprised to see the higher ‘Gap’ tested first before we subsequently trade higher.
EUR/USD
Initially I bought the Euro at 1.1135 and I have since added to this position overnight at 1.1105 which puts me long at an average rate of 1.1120. I am still long and I will leave my stop unchanged at 1.1070. Given how oversold the Euro is trading I do not want to be short the market at this time.
June Dollar Index
Just like the Euro above the Dollar rallied to my 95.60 initial sell level. As I only had a small position I added to this trade at 95.90 and I am now short at an average rate of 95.75. I will now raise my stop on this position to a still tight 96.20.
June DAX
As I only trade the DAX when the official market is open I waited until this morning to go short the DAX which I did at 10340. Subsequently the market rallied and then sold off to a 10287 low print which enabled me to cover this position at my 10300 T/P level as outlined earlier to my Platinum Members and I am now flat. Today I will again look to sell the DAX on any rally higher to 10370/10420 with a 10460 stop. Given how overbought the DAX is trading my only interest in buying the market is still on a dip lower to 10060/10120 with a 10010 stop.
June FTSE
With the FTSE Futures and Cash Markets closed for the UK Bank Holiday I am going to stay out of this market and take another look when we re-open in the morning.
Dow Rolling Contract
No change as I am still a seller on any rally higher to 17970/18020 with the same 18080 stop to allow for the volatility.
June BUND
No change as I am still a buyer on any dip lower to 163.10/163.40 with a 162.85 tight stop which is just below the now key 100 Day Moving Average. I still do not want to be short the Bund at this time especially as we have the ECB Meeting on Thursday.
Gold Rolling Contract
Gold initially traded lower to my 1211 buy level on Friday. As I wanted to be flat ahead of Yellen I emailed my Platinum Members to exit this position at 1214. Thankfully I did this especially with Gold testing the $1200 level this morning. Gold is now extremely oversold on all the technicals that I follow and is due a bounce. The 1188/1195 should act as good support and today I will again look to buy the market on any dip lower to 1192/1200 with a 1185 tight stop.
Silver Rolling Contract
No change as I am still long at 16.15 with the same 15.55 stop. If I am stopped out of this trade I will be a more aggressive buyer on any further dip lower to 15.00/15.40 with a 14.60 stop.
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