The US Fed kept its policy rate unchanged between 0.25% and 0.5% as expected, however the tone of the Statement and forecast revealed a more dovish stance. US Treasury Yields rallied, the US Dollar lost ground against most currencies and US stock failed to retain early gains, slipping into negative territory in the final half hour of trading.
To mark my 1100th 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 155 points yesterday and is now ahead by 705 points for June. The previous three months saw gains of 1532, 2175, and 2265 points respectively. Since I started this service over 12 months ago it has averaged a monthly gain of 2200 points.
The dovish tone in the FOMC Statement came mostly from its assessment of a softer labour market while a decline in market based inflation expectations was also noted. The Fed remarked that the pace of improvement in the US labour market ‘has slowed while growth in economic activity appears to have picked up’. It also said that it still expects inflation to head towards 2%, however it noted that Market-based measures of inflation compensation had declined. This was a downgrade relative to previous comments that they ‘remain low’. Against this backdrop Fed Officials lowered their projection of future rate hikes and also slightly downgraded their growth forecast to 2.0% versus 2.2% for 2016 and 2.0% versus 2.1% for 2017.
Looking in more detail at the Fed Funds Rate projections, although the median dot point for 2016 remains unchanged at 0.875% (which is equivalent to two 25bp rate hikes), the number of Fed Members who expect one one rate hike rose from 1 to 6. So the Fed is now torn between one or two rate hikes in 2016. The median dot point for 2017 is now at 1.625% down from 1.875%, implying the Fed now expects three hikes next year compared to four previously. The median dot point for 2018 has also been lowered to 2.35% from 3.0% suggesting three hikes are more likely instead of four. Finally the long term rate was also lowered by 25bps to 3.0%.
US equities opened the day in positive territory helped along by a positive lead from Europe. A small rally ensued as expected just ahead of the Fed announcement, but all the day’s gains were lost in the last half hour of trading with Utilities and Healthcare stocks the big underperformers.
The US Dollar is weaker across the board with the exception of the CAD which was affected by the lower oil price. The EUR/USD tested 1.13 before selling off to close at 1.1260. Meanwhile US 10 Year Treasury Yields fell 5bps to 1.56% while this morning the German Bund is trading again in negative territory after closing at 0.12% yesterday.
Not helping markets was the 0.4% fall in Industrial Production while May PPI rose 0.4%.
This morning Equity markets are opening weak in Europe after the Bank of Japan left Interest Rates unchanged. The unchanged Monetary Policy comes against a back drop of sluggish economic growth and anaemic inflation which is putting pressure on policy makers to do more to reflate the economy out of stagnation. This bolstered the Yen which fell 250 points against the US Dollar to a 103.58 low print. The Nikkei did not like this news and got hit to close 3% lower at 15,434.
This morning on the economic front we have UK Retail Sales at 9.30 am. This is followed at 10.00 am by Euro-Zone CPI while at the same time the ECB will publish its latest Economic Bulletin. At 12.00 pm we have the Bank of England Rate announcement and Asset Purchase Target. Next at 1.30 pm we have the US Philly Fed, CPI, Real Average Earnings, Current Account and the Weekly Jobless Claims. Finally at 3.00 pm we have the NAHB Housing Market Index.
September S&P 500
I have now rolled to the September Contract and this contract is currently trading with a 10 Handle discount to both the Cash S&P and the June Contract which expires tomorrow. My buy level in the June did not get filled ahead of the FOMC and as a result I did not trade the S&P yesterday and I am still flat. The September S&P has very strong support between 2040/2050 and with the Quarterly Expiration tomorrow I would not press the downside at this time. As I am already long the Dow my only interest in buying the S&P is on a dip lower 2042/2048 with a 2036 wider stop. A break and close below 2040 will be bearish and could well signal that we have finally put in at least a short-term top. As we have now rolled to the September Contract which such a hefty discount I do not want to be short the market today.
EUR/USD
My long 1.1215 Euro position worked well with the Euro rallying to 1.1255 ahead of the FOMC Statement. As mentioned yesterday I wanted to be flat ahead of this announcement and I covered this position at my 1.1235 T/P level and I am now flat. In my opinion the Fed are not going to do the amount of rate hikes as detailed in my economic commentary above and to me it is only a matter of time before the US Dollar finally weakens further. Today I will again look to buy the Euro on any dip lower to 1.1210/1.1245 with a 1.1175 stop which is just below this week’s low print.
September Dollar Index
As mentioned in yesterday’s commentary I wanted to be flat the Dollar ahead of the FOMC and I was thus able to cover my short 95.10 position at my revised 94.90 T/P level and I am now flat. Today I will again look to sell the Dollar on any rally higher to 94.70/95.00 with a 95.35 stop.
September DAX
I have now rolled to the September Contract which is trading at a small 12 point discount to both the Cash DAX and June Contract which expires tomorrow. Yesterday my June DAX plan worked well with the market trading at my 9570 buy level shortly after I posted before having a nice rally which enabled me to cover this position at my 9620 T/P level and I am now flat. Today in the September Contract I will be a buyer on any dip lower to 9420/9470 with a 9375 stop especially as we are so oversold given the 900 point sell-off since last Thursday.
September FTSE
I have now rolled to the September Contract which trading at a large 60 point discount to both the Cash Market and June Contract which also expires tomorrow. My long 5955 June FTSE taken yesterday morning finally worked out as the market hit my 6000 T/P level after lunch with a 6007 high print and I am now flat. With the September Contract trading at such a large discount to the Cash market it is difficult to go short until we see the price action for a few trading sessions first. The FTSE is still trading very oversold with the 5900 level a strong support for the Cash FTSE implying the 5840 area should also be strong support for the September Contract. For this reason today I will be a buyer in the September Contract on any dip lower to 5820/5860 with a 5785 stop.
Dow Rolling Contract
The Dow sold off aggressively in the last half hour of trading last night and with the Bank of Japan Meeting early this morning I stayed flat the Dow until this morning where as emailed earlier to my Platinum Members I have bought the Dow at 17580 with a 17520 stop. I still do not want to be short the Dow at this time given the Quarterly Expiration tomorrow and the fact that I expect the Dollar to resume its decline.
September BUND
The BUND traded higher this morning to my 165.60 sell level and as I am nervous in been short the BUND which sounds insane especially when the Yield is negative I have cut this position here a 165.40 and I am now flat. Today I will again look to sell the BUND on any further move higher to 165.70/16.10 with a 166.40 stop.
Gold Rolling Contract
Unfortunately Gold continues to trade higher without me been able to get a long position on board and I am still flat. This morning Gold is very overbought and I will now look to sell the market on any rally higher to 1325/1332 with a 1340 stop. My only interest in buying Gold is on a dip lower to 1270/1278 with a 1263 stop.
Silver Rolling Contract
Today I will raise my buy level to 17.30/17.60 with a 16.95 stop.
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