Speaking from Davos after I posted yesterday morning, US Treasury Secretary Steven Mnuchin set the tone for the session saying ‘’obviously a weaker USD is good for us as it relates to trade and opportunities’’. While he endeavoured to put some context around this comments, noting that longer term the strength of the USD is a reflection of the strength of the US economy, Mnuchin[s (repeated) lower USD remark ‘’presses on an open door’’. I have never heard such direct comments from a US Treasury Secretary before resulting in the Euro trading to an overnight high of 1.2459.
To mark my 1500th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day This offer is open to both new and existing members and if anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 40 points yesterday and is now ahead by 231 points for the month of January, having made 946 points in December, 823 points in November and 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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It is not only this week’s White House tariffs issue that has been a headwind for the greenback (more to come tomorrow afternoon when President Trump speaks at Davos), there are a whole range of factors stacking up against the USD, including the upward momentum in oil and commodities and perception of what other (non-US) central banks will do with policy this year.
Released yesterday, European January PMIs remained overall at very elevated levels indicating strong growth. While the Manufacturing components slightly missed (but still above 60), the Services and the Composite Indexes accelerated further. The data overall added on net to the theme of continued Euro-Zone growth acceleration, and did nothing to halt the Euro then benefiting from USD weakness. Adding support to the Euro was a letter from Draghi to European MPs reported by Reuters noting that QE has not led to statistically significant movements in the FX rate, FX moves ‘’are a mere side effect, not the objective’’. Note though that it is not clear when that was written. It is very unlikely to have been recently with no reference or green light to the Euro’s current rise. Look for some clarification this afternoon at his press conference.
Among the majors, Sterling again led the way with GBP/USD above 1.4270 this morning, given a leg up by much stronger than expected Employment for November in the monthly labour market report, arriving with Sterling-supportive soothing Brexit background music. UK Brexit Secretary David Davis said Britain will stay closely aligned to the EU regulatory regime while Merkel said Germany is open minded when it comes to the shape of a future partnership with Britain. Italian PM Gentiloni also chipped in, saying that any deal between the UK and EU should include financial services. The likelihood of the UK securing a transition agreement that provides around three years of unchanged trading arrangements has been a continuing driver of Sterling gains. While the EUR is bid, but EUR/GBP has fallen back to mid-2017 at 0.8700/20.
With the USD lower, oil and commodities rose but more so than just currency valuation effects. WTI rose above $65 for the first time since December 2014 and base metals rose in size. For oil, the weekly US EIA oil report showed the 10th weekly decline in inventories, the longest such stretch. WTI is up 1% against around another 1% decline in the USD. The LME base metals index rose 2.45%, copper up a cool 3.28% and nickel 5.64%, both near to if not at current cycle highs. Gold rose another $22.80/oz to $1364.30, +1.69%. The AUD trades is looking to test 0.8080 this morning, up 1.3% over the past 24 hours, broadly in line with gains seen for the Euro, Yen, CAD, and Kiwi.
The DXY (majors) Index has eased to fresh three-year lows at 89.2. Each step lower helps build confidence that the 91.01 (Jan 12 breakdown through Sep lows) will form a decent line of resistance for the next event. From that perspective, today’s ECB is well and truly on the radar and may contain mixed messages for the Euro. Look for Draghi to again talk up the economic recovery, but I will be alert to any anti-EUR messaging at the same time warning on too rapid exchange rate adjustments and the need to maintain a very accommodative monetary policy to secure their inflation objective.
This morning on the Economic Front we already had the release of German GFK Consumer Sentiment and came in slightly higher at 11.00 versus 10.8 expected. At 9.00 am we have German Business Climate, Current Assessment/Expectations and this is followed at 9.30 am by UK BBA Mortgage Approvals and the CBI Distributed Trades Survey at 11.00 am. At 12.45 pm we have the ECB Rate Announcement and this is followed at 1.30 pm by the Dragi press conference. Also at 1.30 pm we have the US Weekly Jobless Claims and Canadian Retail Sales. Finally we have New Home Sales and the Kansas City Fed Manufacturing Activity Index at 3.00 pm and 4.00 pm respectively.
March S&P 500
As every trading day goes by, the price action reminds me so much of what happened in 1987 with the rising stock market coupled with a weaker US Dollar that eventually led to a crash in October of that year. Yesterday after the S&P spiked to a 2853.50 high print the market got hit hard before bottoming just in front of my 2825 buy level with a 2825.50 low print before rallying 20 Handles. I know a lot of you buy in front of my orders given the wide spread charged by the spread betting firms and if you did this then this trade worked well. Personally I used my ‘’5 Handle Rule’’ which saw me buy the S&P at 2831 after we bounced 5 points before emailing my Platinum Members to exit this trade at 2839 and I am now flat. Today I will raise my buy level slightly to 2820/2827 with a 2813 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2798/2806 with a 2792 stop. My only interest in selling the S&P is still on a rally higher to 2858/2868 with the same 2874 tight stop.
EUR/USD
The Euro just roared higher yesterday after the comments from US Treasury Secretary Mnuchin with the market again not giving me an opportunity to get a long position on board. Subsequently given the severe overbought condition of the Euro I emailed my Platinum Members to sell the Euro on any further rally to 1.2440 which hit overnight before the market traded lower to my 1.2415 T/P level and I am now flat. I expect Dragi to try and stem the Euro’s rise when he holds his press conference at 1.30 pm. Remember this time last year the Euro was trading at 1.0350, so we have had a substantial move in the past 12 months. Today I will again look to sell the Euro on any further move higher to 1.2480/1.2530 with a 1.2565 tight stop. I will also move my buy level higher to 1.2270/1.2320 with a 1.2235 stop.
March Dollar Index
Just as I posted yesterday morning we had the Mnuchin comments which drove the US Dollar lower to my 89.40 second buy level for an average long position at 89.70. Thankfully most members do not trade the Dollar Index given the insane spread on the spread betting platforms. I was quickly stopped out of this position at 89.25 and I am now flat. The US Dollar is severely oversold and is due a bounce. Today I will again look go buy the Dollar on any dip lower to 88.25/88.65 with a 87.80 stop.
March DAX
The rising Euro finally hit the DAX hard yesterday afternoon with the DAX trading lower to my 13420 buy level before bouncing to my revised 13435 T/P level and I am now flat. Subsequently the DAX traded to an initial 13375 low print before bouncing with the S&P to a rebound high at 13457 before getting hit hard this morning. The DAX has strong support from 13170/13230 and today I will be a buyer on any dip to this area with a 13130 stop. Otherwise I will stay flat and observe.
March FTSE
My FTSE plan did not work well as initially the FTSE just missed my buy level before rallying strongly. Subsequently the strong rally in Sterling saw the FTSE trade the whole of my buy range for an average long position at 7615 before stopping me out of this trade for a small loss at 7575 and I am now flat. Today I will be a seller on any rally higher to 7625/7655 with a 7685 stop. My only interest in buying the market is on a dip lower to 7480/7525 with a 7445 stop.
Dow Rolling Contract
The Dow spiked to a new all-time high at 26393 shortly after the US Markets opened yesterday before falling 300 points. The volatility is massive meaning we can only trade these markets in smaller size with a wider stop and have to be very careful where we put our orders in. Yesterday’s high should hold for a while given the extreme sentiment readings and today I will now lower my sell level to 26360/26430 with a 26490 stop. The Dow has strong support at 26000 and today I will now move my buy level higher to 25950/26030 with a 25880 stop.
March NASDAQ
Unfortunately the NASDAQ just missed my 6865 buy level before rallying strongly. Incredibly the Daily Sentiment Index Reading for this market is now at 97% similar to the record high in Q1 2000 when the NASDAQ sentiment data started. Today I will leave my buy level unchanged from 6825/6865 with a 6790 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 6695/6735 with a 6660 stop. I still do not want to be short the NASDAQ at this time.
March BUND
No change as I am still a buyer on any dip lower to 159.60/160.05 with a 159.30 stop.
Gold Rolling Contract
The weaker Dollar saw Gold trade above 1360 as the market approaches strong resistance at the 1372/1382 area where I will be a seller with a 1389 tight stop. Given how overbought Gold is trading I will only raise my buy level slightly to 1328/1336 with a 1320 stop.
Silver Rolling Contract
Finally we are seeing a move higher in Silver after weeks of sideways action. I am still flat and today I will now raise my buy level to 17.00/17.35 with a 16.70 stop which is just below Monday’s 16.73 low print.
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