Yesterday we saw some currencies break some key levels. The breaks below here have been a common feature of many of the big currency moves witnessed since mid-March. EUR/USD is the latest to push below its 200dma (just above 1.20) with the psychological 1.20 level now pierced. Big figure levels have also been broken for the Australian Dollar at 0.75 and NZD at 0.70, taking these pairs down to their lowest levels since 6th June and 22nd December 2017 respectively. Adding to the current woes of the NZD overnight was an unexpected 1.1% fall in the GDT price index at the latest dairy auction.
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For anyone following my Platinum Service it lost 20 points yesterday on the first trading day of May, having made 1657 points in April, 1760 points in March, 2256 points in February, 879 points in January and 946 points in December. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Latest currency moves see the US dollar bid against all major currencies bar one – the Chilean Peso. The narrow DXY index broke above its 200dma shortly after the London Market opened and the rest, as they say, is history, with a swift 0.5%+ gains following in the subsequent few hours.
The fracturing of the ‘’synchronized global growth’’ narrative in recent weeks and renewed divergent trends in interest rates between the US and the rest of the world as many non-US Central Banks are as Jose Mourhino might say ‘’parking the bus’’ with respect to moving forward with any steps toward policy normalisation any time soon. This was again the message out of the RBA Board meeting yesterday morning and embellished by Governor Lowe in his pre-Board dinner speech in Adelaide later, albeit he re-iterated than the RBA still expects the next move in rates to be up.
As I have also been stressing in my recent commentaries, stretched short US dollar positioning, vis a-vis the EUR, NZD and GBP in particular, looks to have had a hand in explaining the rapid reversals in the fortunes of these latter currencies, in which respect I noted at the weekend that latest CFTC/IMM data shows as yet scant evidence that long speculative positioning in these currencies has been significantly unwound, as of Tuesday last week at least.
To this I might also add that the recent run up in oil prices, to the extent it is very much a ‘’supply shock’’ not ‘’demand drive’’ affair, on expectations President Trump will shortly pull the US out of the 2015 Iran nuclear deal, is something that the US, in the midst a dramatic fiscal expansion, will weather much better than the rest the (net oil importing) world. It also promises to add to existing US inflation impulses, at the margin adding to the risks for three not two more Fed rate rises this year.
The main US economic news yesterday was the ISM Manufacturing Index, which fell to a 9-month low of 57.3 and below expectations (58.5) while the prices paid gauge rose to a 7-year high. Activity levels nevertheless remained strong and the key take-out was that inflationary pressures were rising. US Treasury yields are about 1bp higher across the curve (10s at 2.965%) suggesting that more of the inflation message was taken on board that the slightly weaker growth dynamic.
Canada has reported February GDP at 0.4%, better than the 0.3% expected and pushing year on year growth up to 3% from 2.7% in January. Bank of Canada Governor Stephen Poloz has just been speaking and is certainly not sounding hawkish, expressing concern about transition in household debt dynamic (and hence the sensitivity to higher rates) and saying the forces in the economy suggest it is not yet time for policy to be at neutral. On NAFTA, he makes clear he wants to see how the economy performs after a satisfactory deal is struck – assuming one is of course – before acting again on rates. The Canadian Dollar has been the ‘’least bad’’ performing G10 currency over the past 24 hours.
Leading the way down (again) in currencies has been the British Pound, whose fall from grace has been quite spectacular in the last two weeks – a full 8 cents against the USD. Weaker than expected manufacturing PMI data (53.9 from 54.9) has added insult to the injury caused by last week’s weaker than expected GDP data, as well as an increasingly messy political landscape with as yet no clarity on the UK’s Brexit negotiating positon (in particular whether discussions about Britain remaining in the EU Customs Union are definitely ruled in or out).
US equities had a wild trading session with the Dow closing 67 points lower at 24100 after rallying 300 points in the last hour of trading. Apple has reported its Q1 earnings after the close, not wildly different from expectations on key metrics (including shipments and average unit selling prices) but its plans for share buy-backs ($100bn) and enhanced dividends sees its share price currently up 4% in after-hours trade.
This morning on the Economic Front we have German and Euro-Zone Manufacturing PMI at 8.55 am and 9.00 am respectively. This is followed at 10.00 am by Euro-Zone GDP and Unemployment. Next we have US MBA Mortgage Applications at 12.00 pm and the ADP Employment Change at 1.15 pm. At 2.45 pm we have the ISM New York Index. Finally at 7.00 pm we have the FOMC Rate Announcement where no change is expected.
June S&P 500
Another wild trading session for US Indices with the S&P trading the whole of my buy range for an average long position at 2635 before the rallied to my revised 2639 T/P level and I am now flat. It is getting to the stage where you have to trade in smaller size with wider stops and this is particularly true for both the Dow and S&P. This evening at 7.00 pm we have the FOMC Rate decision. As I go to print there is no press conference with Fed Chair Powell scheduled. The S&P will continue to be a buy on dips as long as we can hold the 200 Day Moving Average but once this is broken convincingly I would expect a large sell-off in the market. Today I will again look to buy the S&P on any dip lower to 2632/2642 with a 2625 stop. Ahead of the FOMC I still do not want to be short the S&P at this time.
EUR/USD
The Euro sold off after I posted yesterday morning with the market trading lower to my second buy level at 1.2010 with a 1.1980 low print. I am now long at an average rate of 1.2035. The Euro is oversold, trading at the bottom of its Daily Bollinger Band and Williams Index and is due a bounce after falling 400 points in the last two weeks. Today I will now raise my T/P level on this position to 1.2070 with the same 1.1970 stop.
June Dollar Index
I am still flat the Dollar and today I will now look to sell the market on any move higher to 92.50/92.90 with a 93.20 stop. Given how severely overbought the Dollar is trading I do not want to be long the market at this time.
June DAX
The German Markets have re-opened after being closed yesterday for the May Day Holiday. I am still flat the market and today my only interest in buying the DAX is on a dip lower to 12420/12490 with a 12360 stop. Despite the massive resistance at the 100 and 200 Day Moving Averages above from 12670/12740 I still do not want to be short the market at this time.
June FTSE
The FTSE has enjoyed a nice ride higher over the past two weeks helped greatly by the 8 cent fall in Cable. With Sterling severely oversold I would expect the currency to bounce and this should stop the FTSE from making gains from here. Today I will be a small seller from 7525/7570 with a 7605 stop. Given how overbought the FTSE is trading I do not want to be long the market at this time.
Dow Rolling Contract
For the second consecutive Tuesday my Dow plan has not worked mainly because given the volatility my stop was too tight. The idea of buying the dip was correct with the Dow eventually rallying 100 points above my initial buy level but unfortunately after I bought the Dow at an average level of 23970 I was stopped out of this position near the low of the day at 23860. The Dow bottomed 50 points lower before rallying 350 points in the last two hours of trading. As I mentioned to my Platinum Members I am going to have to use wider parameters and trade in smaller size. The Dow has key support from 23780/23930 and today I will be a small buyer on any dip to this area with a 23680 stop. The Dow has strong resistance from 24300/24450 and I will be a seller in this area with a 24525 stop.
June NASDAQ
My NASDAQ plan worked well with the market trading lower to my second buy level at 6590 for an average long position at 6610. The NASDAQ was firm all day expecting good results from Apple and now trades 100 points higher at 6720. Unfortunately I covered my long position at 6625 T/P level as mentioned in yesterday’s commentary and I am now flat. Today I will again look to buy the market on any dip lower to 6590/6640 with a 6545 stop. I still do not want to be short the market at this time.
June BUND
I am still flat the market and today I will be a seller on any rally higher to 159.00/159.35 with a 159.65 stop. My only interest in buying the Bund is on a dip lower to 157.70/158.10 with a 157.40 stop.
Gold Rolling Contract
My Gold plan worked well with the market trading lower to my 1302 buy level before rallying to 1312 this morning. As I was already long Silver and the Euro I covered my long Gold position at my revised 1305 T/P level and I am now flat. The 1300 level is key support and today I will again look to buy the market on any dip lower to 1296/1304 with a 1289 stop.
Silver Rolling Contract
Unfortunately Silver just missed my second buy level at 15.90. I am still long at 16.32 from late Monday and I will now raise my stop on this position to 15.85.
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