More unwinding of the Trump lower taxes/higher infrastructure spending US Dollar reflation trade has again been the order of the day during yesterday’s volatile trading session.. The Bloomberg spot US Dollar index closed down by 0.75% as markets again sell the big buck, reacting to the latest statements from the new Administration, selling kicking off earlier in the session with some safe-haven buying of Japanese Yen and the Swiss Franc in response to the immigration policies. The Dollar Index closed with a Downside Key Month Reversal having already had significant Downside Key Week and Key Day Reversals earlier in January. This potentially a very bearish development for the US Dollar.
To mark my 1250th 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 132 points yesterday to close January with a 1734 point gain having made 1351 points in December, 1971 in November and 1582 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.
If the machinations over the firing of the US Attorney General wasn’t enough on top of the immigration bans, Trump trade advisor Peter Navarro (put that name into your memory banks now) said the Euro was “grossly undervalued”, criticising Germany for using an undervalued EUR to exploit the US and Germany’s own EU partners. Not to be left out, the President took a swipe at China and Japan saying they “plan” their money markets, presumably a pejorative reference to QE and lower currencies.
Sensitivity over the US Dollar’s strength is becoming an issue, and of course, could yet come into Fed calculations, given time. The President has also been meeting with health/pharmaceutical companies telling them that plans to gut regulations, to smooth the FDA approval process and cut taxes would overwhelm lower drug prices. Health care stocks along, with (defensive) Utilities, outperformed the US market yesterday, rising in a down day for stocks.
US Dollar selling and Euro buying was done no harm from respectable EZ releases. The Eurozone’s trifecta of flash Q4 GDP, January CPI and its December Unemployment reflected continued economic improvement. GDP was 0.5%/1.8%, a tenth more than expected, Unemployment was down to 9.6%. Core CPI was steady at 0.9%, while headline inflation was higher at 1.8%, up from 1.1%, thanks to an energy kick (possibly transitory unless oil keeps getting support and the EUR declines again) and some from food. Domestic services inflation was muted at 1.2%. So no clean fuel for the ECB to shift from their current QE policy path.
On the other side of the Atlantic – ahead of this evening’s FOMC announcement – the data set turned was mixed and not standing in the way of US Dollar selling then underway. US House prices in November continued rising, up 0.88%/5.27%% (close to October’s), while the Conference Board’s Consumer Confidence report for January missed expectations at 111.8 down from 113.3 with 112.8 the consensus median. If the truth be told, it’s still a sizeable net gain in confidence recent months and at levels not seen since before the Global Financial Crisis. And the Jobs Plentiful Index component of the report continued to improve, as consumers’ perceptions of job opportunities rose again to 5.9. As a slight dampener, and running against the tide of what have been more improving regional manufacturing indexes in January, the Chicago PMI pulled back to 50.3 from 54.6 (E: 55.0).
In Commodities, the big winner was Silver which again moved higher following last Friday’s significant Upside Key Day Reversal closing at $17.50 which is 11% higher since the end of December.
This morning on the economic front we have Euro-Zone and UK Markit Manufacturing PMI at 9.00 am and 9.30 am respectively. This is followed at 1.15 pm by the US ADP Employment Change and this release will be closely watched ahead of Friday’s Non-Farm Payrolls data. At 2.45 pm we have US Markit Manufacturing PMI and this is followed at 3.00 pm by Construction Spending and ISM Manufacturing. Finally at 7.00 pm we have the FOMC Rate announcement. Right now, the market is pricing barely a 20% chance of a lift in rates, Janet Yellen’s recent speeches non-committal on timing as you’d expect. Her recent speech in San Francisco spoke of the economy nearing the Fed’s employment and inflation goals, of gradual rises, that the Fed can’t give the timing of the next hike while not delaying too much that would risk a “nasty surprise”, all keeping her options open. Only one of the 92 analysts surveyed by Bloomberg is forecasting a hike at tonight’s meeting. The market will be most interested in whether the statement will be anything more specific on timing and whether the 15 March meeting is “seriously live” or not. The market is currently pricing in 9bps of tightening for that meeting, a 37% chance of a hike. Monday’s PCE deflators raised no new inflation risk alarm bells, but neither did it suggest that inflation is receding. As I go to print there is no press conference scheduled following the release of the FOMC Statement.
March S&P 500
My March S&P plan worked very well yesterday with the S&P hitting my 2264 buy level before trading to an overnight high at 2281. As so many of my markets again hit at the same time yesterday it is difficult for me to gauge which markets members are holding and which they are cutting after a bounce. As I have such a variation of members with some specialising in different contracts I have to write on four Indices. My own recommendation is that you only hold two Index positions at the same time and that if more than one Index hits my buy level then lower your buy level for the subsequent Indices thus reducing your risk. Yesterday after the S&P hit my 2264 buy level I covered this position at 2266 as at that stage I was long the Dow, DAX, US Dollar Index and Silver. I emailed my Platinum Members not to panic as I expected a rally into the close especially with the FOMC Meeting this evening and thankfully this is what we got. Today I will again look to buy the S&P on any dip lower to 2265/2271 with a 2260 stop. If I am taken long and stopped out of this position I will be a more aggressive buyer on any dip lower to 2236/2242 with a 2231 stop. Remember the S&P has to break and close below the December 30 low at 2227.75 for me to turn bearish. My only interest in selling the S&P is on a rally to 2294/2299 with a 2304 stop.
EUR/USD
Unfortunately the Euro just spiked higher shortly after I posted yesterday morning which makes Tuesday’s miss of my 1.0615 buy level with a 1.0620 low print even more frustrating. While the Dollar Index had a Downside Key Month Reversal the Euro did not as it would have need to take out the early December high at 1.0874 to achieve this. The Euro is overbought after its huge near 500 point move since the first trading day of January and given the significance of the December high at 1.0874 I will be a seller on any further rally to 1.0855/1.0890 with a 1.0920 stop. My only interest in buying the Euro today is on a dip lower to 1.0690/1.0730 with a 1.0655 stop.
March Dollar Index
The Dollar Index did indeed finish January with a Key Month Downside Reversal which in itself is an extremely rare occurrence. The Dollar is oversold after this significant development and is probably due a rally first before we head lower. Yesterday the Dollar traded lower to my average buy level at 99.50 before rallying small and I emailed my Platinum Members to exit this position at 99.65 and I am now flat. Given how oversold the Dollar is trading I will again look to buy the market on any dip lower to 99.10/99.50 with a 98.75 tight stop. I still do not want to be short the Dollar especially with the FOMC Statement due at 7.00 pm.
March DAX
Volatility has returned to the DAX after taking a break for nearly four weeks. For once I was lucky with my DAX call yesterday as after the market hit my average buy level at 11600 the market came withing a couple of points of hitting my 11530 stop before bouncing into the 9.00 pm close. I do not trade the DAX overnight as the spread betting firms make their own prices up outside of normal trading hours and I emailed my Platinum Members to exit any long DAX position at 11620 and this was filled at 11635 at the 7.00 am opening this morning and I am now flat. Today I will again look to buy the DAX on any dip lower to 11510/11560 with a 11465 stop. Despite the DAX breaking back below the key 11810 pivot point I do not want to be short the market at this time especially as new monies are put to work at the beginning of a month.
March FTSE
The FTSE was the last of my calls to get hit yesterday when the market hit my 7040 buy level. Again any member who held on to this position it worked well with the market trading at 7090 this morning. However as I had so many open positions as mentioned in my S&P commentary above I exited this position at 7052 and I am now flat. Today I will again look to buy the FTSE on any dip lower to 7020/7055 with a 6990 stop. Just like the DAX above I do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow was the weakest of the US Indices yesterday with the market hitting my average buy level at 19840. Just like the DAX above I was lucky that my stop did not get hit before the market rallied into the New York close and this rally enabled me to cover this long position at my revised 19865 T/P level and I am now flat. Today I will again look to buy the Dow on any dip lower to 19740/19800 with a 19690 stop. With the FOMC Statement due later this evening I do not want to be short the Dow at this time.
March BUND
I am still flat the Bund and today I will raise my buy level slightly to 161.10/161.50 with a 160.75 stop.
Gold Rolling Contract
Gold followed Silver higher on the back of the weaker US Dollar. Gold needs to break and close over 1220 after rallying over $30 since last Friday. I am still flat Gold and today I will raise my buy level slightly to 1185/1192 with a 1178 tight stop.
Silver Rolling Contract
We saw some nice follow through in Silver after last Friday’s Upside Key Day Reversal and this rally enabled me to cover my latest long 17.10 position at my 17.35 T/P level and I am now flat. For those members following my long Silver position taken in my pension fund at the end of December at a price of 15.80, I covered 30% of this position at 17.50 yesterday for an 11% gain. Yesterday’s move higher in Silver saw the market close over the key 17.20/17.40 resistance level which is bullish and on the back of this I have again bought Silver here at 17.50 with a tight 16.95 stop.
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