Fed Chair Janet Yellen’s appearance and speech at Jackson Hole last Friday afternoon proved not to be the damp squib that many including myself were expecting, though in truth much of the sustained reaction in Currency and Interest Rate markets came not from her comments directly but follow up remarks by Fed Vice-Chair Stanley Fischer.
To mark my 1150th 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 125 points on Friday and is now ahead by 1500 points for August having made 1682 points in July. The previous three months saw gains of 2550, 1532 and 2175 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 2100 points.
The Yellen remarks that initially caught the market’s imagination were that ”I believe the case for an increase in the Federal Funds Rate has strengthened in recent months”. The US Dollar jumped across the board and Bond Yields rose across the curve on this, but within 20 minutes yields were back below the pre-speech levels. It was only when Stanley spoke to CNBC an hour or so later that saw the US Dollar reverse course and produce an Upside Key Day Reversal.
Asked whether Fed watchers should be looking for a move in September, and possibly for two hikes this year, Fischer replied ”What the Fed Chair said today was consistent with answering yes to both questions”. Atlanta Fed President Dennis Lockhart also weighed in, saying he saw two rate hikes as possible this year.
Why the retracement of knee-jerk moves on the Yellen speech? One reason was her admission well down in the speech that ”by some calculations, the real neutral rate is currently close to zero and it could remain at this low level if we were to continue to see slow productivity growth and high global savings. If so, then the average level of the nominal Federal Funds Rate down the road might turn out to be only 2%”. Later on though, she addressed the question of whether the Fed might consider adopting either a higher inflation target, a target saying that the Fed ”is not actively considering this”, while adding it is an important subject for research.
In Interest Rates, the biggest move was seen in the 5 year part of the Treasury Curve, +7bps to 1.24%. The implied probability of a September move from the Fed increased to 42% from 33% and for one 25 point move by December to 75% from 68%.
The US Stock market which initially rose strongly on Yellen’s speech then reversed course to move 1% lower before recovering somewhat into the New York close. The S&P 500 ended 0.16% lower on the day at 2169. Tellingly though the VIX hardly changed, finishing +0.02 at 13.65, implying no marked deterioration in risk sentiment on the heightened prospect of higher US Rates this year.
In FX, the DXY and broader BBDXY Dollar Indices closed +0.80%. The biggest G10 mover was USD/JPY which closed 1.3% higher at 101.84 which is its highest level in two weeks.
This morning we have no Euro-Zone economic data as we approach the end of the Summer vacation in Europe. With the UK closed for their last Bank Holiday before Christmas we have no UK data either. At 1.30 pm we have US Real Personal Spending and the PCE Deflator. Finally at 3.30 pm we have the Dallas Fed Manufacturing Index.
September S&P 500
After a week of very little net price movement for the stock market, the market’s inertia that I noted last week, indeed changed. Both the Dow and S&P were highly volatile on Friday with both markets having Downside Key Day Reversals. With so many of my calls getting hit on Friday, I was lucky with my S&P which had hit my average buy level at 2165 before trading to a 2157.50 low print and in the process just missing my 2157 stop. Subsequently the S&P rallied over 15 handles into the close and this rally enabled me to cover this position at my revised 2167 T/P level and I am now flat. Despite the S&P having a downside Key Day Reversal on Friday I find it hard to short this market unless we break Friday’s low and also close below 2154. With month-end on Wednesday followed by the start of a new month (even though it is September which is traditionally the weakest month of the year) I am still going to be a buyer on dips in this market. Today I will again look to buy the S&P on any dip lower to 2159/2165 with a wider 2153 stop. I still do not want to be short the S&P at this time.
EUR/USD
For a change I was very lucky on Friday as initially after Yellen spoke the Euro traded lower to my 1.1240 buy level before rally strongly and this rally enabled me to cover my long position at my 1.1280 T/P level and I am now flat. Much to my frustration Friday was a serious downside Key Day Reversal for the EUR/USD. I am still not convinced that despite the comments from Fischer on Friday that the Fed will hike rates next month as I believe they will at least wait until after the US Presidential Election in November. There is no doubt that next Friday’s Payroll data will now be key to a September rate hike or not. The move lower in the Euro on Friday also brought the market back below the key 1.1240 support level and this pivot point should now act as strong resistance. Today I will be a small seller on any rally higher to 1.1235/1.1275 with a 1.1305 stop. I will also be a small buyer on any dip lower to 1.1100/1.1140 with a 1.1070 stop.
September Dollar Index
Friday’s wild action eventually saw the Dollar trade higher to my 95.25 sell level. I am still short and I will leave my stop unchanged at 95.80.
September DAX
Unfortunately the DAX just missed my 10450 buy level with a 10452 low print on Friday before the market rallied strongly and I am still flat. There is no doubt the weaker Euro should help the DAX and if the Euro stays weak then the DAX will be a buy on dips. Today I will move my buy level higher to 10420/10470 with a 10375 stop.
September FTSE
My FTSE plan worked well on Friday with the market trading lower to my 6775 buy level. As I had so many open positions at the same time I emailed my Platinum Members to cut this position at 6795 and I am now flat. With the FTSE market closed today for the UK Bank Holiday I will have no update for this market until tomorrow.
Dow Rolling Contract
My Dow plan also worked well with the Dow trading lower to my 18370 buy level. Just like the FTSE above as I was long so many Indices at the one time I emailed my Platinum Members to exit this position too early at 18395 and I am still flat. Today I will again look to buy the Dow on any dip lower to 18280/18340 with a 18230 stop as I still expect the Dow to have trouble falling from here ahead of month-end and despite Friday’s downside Key Day Reversal.
September BUND
The BUND traded lower to my 166.95 buy level late Friday. I am still long and many of you may have gotten a better fill with this morning’s 166.63 low print. I will now raise my stop on this position to 166.55.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1305/1312 with the same 1298 stop.
Silver Rolling Contract
My long 18.60 Silver position worked well on Friday with the market rallying to a 19.08 high print shortly after Yellen spoke. This rally enabled me to cover this position at my 18.80 T/P level. Subsequently I emailed my Platinum Members to re-buy the market again at 18.65. I am still long and I will leave my stop unchanged at 17.95 which is just below the key 18.20 pivot point and major support level. Remember a break and close below 18.00 will be at least short-term bearish.
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