Sterling was one of the top G10 performers yesterday following comments from David Davis (UK Brexit minister) that the UK may pay the EU for market access. Reactions to the comments saw the GBP/USD jump almost two big figures from 1.2511 to 1.2696 and although some of this move got reversed, Cable is still up over 1% trading at 1.2635 this morning. The positive Sterling reaction to David Davis comments is somewhat surprising given that we know Europe has no interest in letting the UK get off lightly. For one Davis did not mention how much the UK will need to pay in order to play while recent comments from French and German officials suggest the UK will need to pay a heavy price for voting to leave the EU. Short covering has probably also been a factor for the Sterling rise in the past 24 hours.
To mark my 1225th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 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 can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 215 points yesterday on the first trading day of December having made 1971 points in November and 1582 points in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points.
Looking at other markets reaction yesterday, oil prices have continued to rise following Wednesday’s OPEC production cut agreement with the move having a mixed impact across markets. The inflationary pressures from higher oil prices has seen an upsurge in Bond Yields across the board while equity markets are mostly weaker with the rise in energy stock countered by declines in Technology share amid concerns over Trump’s trade policy.
Looking at currencies in more detail, the US Dollar is weaker against most currency with the DXY index down 0.55%. In G10, oil linked currencies have outperformed with NOK up 0.98% and CAD -0.88%. As mentioned above GBP has also gained some ground and the Euro is also another outperformer (+0.41). Gains in the EUR came off the back of a Reuters’ article that noted the ECB will extend its bond buying programme beyond March, but it will also consider sending a formal signal that the programme will eventually end.
This is a mixed message, an extension to the programme should be EU bond positive and EUR negative, but any signs of tapering should have the opposite effect. Reaction to the news suggest the market had already priced an extension to the programme with the suggestion of a potential tapering given a boost to the Euro and seen as catalyst for Bunds’ underperformance to US Treasuries yesterday. Relative to where I marked prices yesterday morning the US Treasuries have climbed another 7bps to 2.45% while 10 Year Bunds ended the day 8 bps higher at 0.634%.
As for economic data releases, the US ISM Manufacturing index rose to 53.2 marginally beating expectations of 52.5 and Europe’s Unemployment Rate dropped to 9.8% beating expectations of a 10% print.
This morning on the economic front we have Euro-Zone PPI at 10.00 am. This is followed by US Non Farm Payrolls, Unemployment Rate and Average Earnings at 1.30 pm. Wednesday’s stronger than expected ADP measure of private payroll (216k gains) increases the probability of a solid NFP print. Bloomberg is currently showing consensus expectations at 180k, but the whisper number appears to be somewhere in the region of 210-220k. The falling trend in Jobless Claims in recent months is one supporting factor for a strong print while “a payback” from hurricane Matthew is another. The Unemployment Rate is seen unchanged at 4.9% and hourly earnings are expected to remain unchanged at 2.8% on a yearly basis, but down on a monthly basis to 0.2% from 0.45 previously. Finally at 2.45 pm we have ISM New York.
We have a series of Fed speakers today and over the weekend. Starting with Fed Mester and Kaplan this afternoon, followed by Brainard and Tarullo early on Saturday, culminating with Dudley on Sunday.
Italy goes to the polls this Sunday 4th December in a referendum on the Constitution. A no vote is seen as a destabilising force for the Euro and the EU on the basis that it provides further impetus to the rising nationalistic and anti-immigration movement in Europe. In addition a “No” vote is also seen as a source of instability for the Italian economy with many concerned over the impact on Bond Yields and a banking system in desperate need for recapitalisation. Meanwhile the second round of the Austrian presidential election is also taking place on Sunday and although it will surely be overshadowed by the Italian referendum, a win by the far-right Freedom Party led by Norbert Hofer will no doubt increase concerns about the survival of the European Union and the Euro. Moreover it will also likely set the tone on expectations for the general elections in Holland, France and Germany next year. I think political instability will play a significant role on the direction of the Euro over the coming months with the above mentioned elections coupled with Brexit negotiations seen as potential sources of heightened volatility.
December S&P 500
After another volatile trading session in which both the S&P and NASDAQ were weak, the Dow was again the outperformer. The McClellan Oscillator continued to sell off closing with a negative – 5 print. Remember we still have a confirmed Hindenburg Omen on the clock from last month and this indicator is valid for three months. We only have had one stock market crash in the last 20 years without a HO. Late yesterday the S&P hit my 2188 buy level before bouncing into the close. As is my norm I want to be flat ahead of the NFP at 1.30 pm and I emailed my Platinum Members to exit this position for a small gain at 2191 and I am still flat. As mentioned yesterday the S&P has strong support at 2180 and below that at 2173 with the 100 Day Moving Average coming in at 2159. This is why the S&P continues to be a ”buy on dips” especially as we are in the seasonally strong period of the year. Today I will look to buy the S&P on any dip lower to 2172/2179 with a 2166 stop. 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. Going into the Italian Referendum on Sunday I do not want to be short the S&P at this time despite the weakening MO.
EUR/USD
My Euro plan worked really well with the Euro trading lower to my 1.0585 buy level yesterday afternoon before rallying to my 1.0625 T/P level and I am now flat. Again the Daily Sentiment Index reading has proved what a valuable technical tool if used correctly. We still have this massive bearish divergence versus the Dollar Index as mentioned at length in yesterday’s commentary. I will not turn bearish the Euro unless we take out the March 23, 2015 low at 1.0462. Obviously any Euro positions taken today will have to be cut by the end of the day as nobody wants to have a position ahead of the Italian Referendum and Austrian Elections on Sunday. Today I will again look to buy the Euro on any dip lower to 1.0570/1.0610 with a 1.0535 tight stop.
December Dollar Index
I am still flat the Dollar and today I will lower my sell level to 101.55/101.90 with a 102.25 stop.
December DAX
My DAX plan worked well with the DAX hitting my 10520 buy level before lunch before having a nice rally to 10580. As I wanted to get December off to a positive start I emailed my Platinum Members to exit this position at 10545 and I am still flat. The DAX has traded heavy over the past week due mainly to the Italian Referendum on Sunday. The rising Euro over the past 24 hours will not have helped the market either. Today the DAX has support at 10430 and below this at 10310/10330. A break and close below 10310 is more negative as we have not closed below this level in three weeks. The next target is the important support at 10190. Today I will be a buyer on any dip lower to 10320/10380 with a 10270 stop. Despite the negative price action I still do not want to be short the DAX at this time.
December FTSE
The strength in Sterling yesterday saw the FTSE sell off to a 6686 low print which enabled me to buy the market at my average buy level at 6725. When Sterling started to weaken the FTSE rallied to a 6765 high print and this rally enabled me to cover this position at my revised 6750 T/P level. I was lucky as my stop was at 6685 which just missed. I am still flat the FTSE which is again selling off on the back of Sterling rising again. As mentioned yesterday a break and close below 6690 is a sell signal as the next decent support does not come in until 6540/6570. Today I will look to sell the FTSE on any rally higher to 6730/6760 with a 6790 tight stop. My only interest in buying the FTSE is on a dip lower to 6535/6575 over the coming days with a 6490 stop.
Dow Rolling Contract
The Dow continues to outperfom the other US Indices despite the weakening internals of the market. It is incredible that the MO is in negative territory when the Dow is less than 0.25% from all-time highs. Yesterday the Dow hit my 19210 sell level before selling off. Unfortunately as I had so many positions again which got hit, I emailed my Platinum Members to exit this position for a small gain at 19190 and I am now flat. After having a rough start to September I am determined that this will not happen again thus the reduced profit taking. This strategy worked really well with the 215 points gained, which is a nice start to the month. Today I will as usual stay flat the Dow until we get the NFP release at 1.30 pm. If the Dow rallies on this news I will again look to sell the market from 19260/19340 with a 19400 stop. Given the weakening internals I do not want to be long the Dow at this time.
December BUND
My Bund plan worked really well with the market hitting my 159.80 average buy level with a 159.54 low print before rallying in the past 20 minutes to my 160.15 and I am now flat. This certainly makes up for the loss in the Bund on Wednesday. As mentioned yesterday the Bund has very strong support at its 5 year trend line at 158.70/159.00 and a break and close below here will be very bearish as there will be all sorts of longer term stops just below here. Today I will again look to buy the Bund on any dip lower to 159.60/159.90 with a 159.30 stop. If I am taken long or subsequently stopped out of any long position I will be a more aggressive buyer in front of 158.95 with a 158.50 tight stop.
Gold Rolling Contract
My Gold plan worked well with the market trading lower to my 1162 buy level before rallying to a 1178 high print overnight. Again as the points for each $1 move are so high on the spread betting firms I covered this long position too early at my revised 1166 T/P level and I am now flat. The big question is whether Gold has finally put in a bottom at yesterday’s 1160 low. If Gold can close over 1180 this evening then we may have finally seen a tradeable low. Today I will again look to buy Gold on any dip lower to 1162/1169 with a 1155 stop.
Silver Rolling Contract
No change as I am still long at 16.65 with the same 16.85 T/P level.
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