Commodity currencies have all made a decent comeback since I posted yesterday morning despite a fairly mixed performance from commodity prices, albeit Brent crude has now topped $79 for the first time since November 2014. Euro weakness has much to do with it, linked to Italian politics. Risk markets have recovered from the mini-shock of 10-year Treasuries hitting 3.09% on Tuesday, US stocks closing in the green even though US 10s have just traded at 3.10% for the first time since July 2011. The S&P 500 has ended in New York +0.4% and the NASDAQ +0.6% while the Russel 2000 made a new all-time high.
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For anyone following my Platinum Service it lost 25 points yesterday and is now ahead by 702 points for 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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The CAD, AUD, NOK and NZD are all shown gains of 0.5% or more against the USD in the last 24 hours, while EUR/USD is 0.3% lower. In the case of AUD/USD, this is after the pair traded as low as 0.7450 in the immediate aftermath of yesterdays Q1 Wage Price Index, recording another 0.5% outcome (0.47% to be precise) and reinforcing prevailing sentiment that the RBA is not going anywhere for a good while yet. It is tempting to attribute the Australian Dollar’s comeback to reports yesterday that the Kazakhstan Central Bank has increased its reserve allocation to Australian dollars from 5% to 8%, but for a central bank with barely $4bn worth of reserves the flows involved would barely have touched the sides of the FX market. Still, a reminder perhaps that despite the cross-over between US and Australian yields, there is no evidence reserve mangers are in general less willing owners of Australian dollars and related financial assets.
CAD sits slightly above other commodity currencies this morning – seemingly thanks to oil – despite the lack of tangible progress on NAFTA negotiations (recall US House leader Paul Ryan set a deadline of May 17th for a ‘’deal’’ to be delivered in time to gain approval before the November mid-term elections) and also dovish remarks from Bank of Canada deputy Governor Lawrence Schembri. Schembri said that “in the near term, we have a bit more room than we thought to support demand without sparking undue inflationary pressures,” and the “the faster the economy can grow without inflation rising persistently above our target”.
Upsetting the Euro along with Italian bond markets at the start of the European trading day yesterday was the reporting of a draft of a document emanating from the ‘’Conciliation Committee’’ of 5-Star and League party officials currently in the throes of trying to form a workable coalition government. It suggested the ECB should cancel the roughly 250bn worth of debt that the ECB will be holding once its QE bond buying programme is finished (equivalent to about 10% of all outstanding debt). It also suggests the EU Stability and Growth pact should be radically changed and that the Italian contribution to the EU budget post 2020 should be re-discussed.
All non-starters from the ECB or EU’s perspective of course, and indeed a spokesman for League subsequently made clear to reporters that the ECB debt forgiveness proposal was not a feature of later iterations of the document. What is being proposed though is that the Italian debt held by the ECB is not counted in terms of calculating Italy’s Debt/GDP ratio (and which in turn imposes constraints on what Italy can do fiscally under the Stability and Growth pact). The spread of Italian 10-year bonds over German equivalents, currently sits 20bp higher than 24 hours ago. The EUR/USD exchange rate made a low of 1.1764 (its lowest since 19th December 2017) but has since pulled back to just above 1.18.
Incoming US economic data has not been much of an influence on markets. US Housing Starts came in weaker than expected at -3.7% though Building Permits at -1.8% was a little less weak than feared. April Industrial Production rose by 0.7% against +0.6% expected.
This morning on the Economic Front we have Italian Trade Balance at 9.00 am. This is followed at 1.30 pm by US Weekly Jobless Claims and the Philly Fed Index. Finally at 3.00 pm we have the Leading Index.
June S&P 500
Yesterday was a frustrating trading session with the S&P just missing my 2702 buy level with a 2704 low print before rallying to just shy of my 2728 sell level and I am still flat. As I mentioned yesterday that as long as we can hold the 50 Day Moving Average at 2683 it is very difficult to be short the market despite how expensive this market trades on a P/E basis. Today I will now raise my buy level to 2701/2710 with a 2694 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 2677/2685 with a 2670 stop. My only interest in selling the market is on a rally higher to 2740/2750 with a 2756 stop.
EUR/USD
Unfortunately the Euro missed my 1.1745 buy level with a 1.1764 low print before spending the rest of the afternoon rallying. This is no surprise especially when you see the DSI reading in single digits. Today I will raise my buy level to 1.1725/1.1765 with a 1.1690 stop. Given how oversold the Euro is trading after falling over 650 points since mid-April I do not want to be short the market at this time.
June Dollar Index
The Dollar just missed my 93.00 T/P level on my 93.20 short position shortly after I posted yesterday morning before quickly stopping me out of this position at 93.45 and I am now flat. With the DSI bullish sentiment at 91% which suggests that a nearby peak is close. Yesterday’s 93.55 high should act as formidable resistance and today I will again look to sell the Dollar on any further rally to 93.45/93.85 with a 94.15 stop.
June DAX
The DAX traded in a narrow 75 point range yesterday and I am still flat. The market looks heavy after its huge run higher over the past four weeks. For this reason I will leave my buy level unchanged from 12800/12880 with the same 12730 stop. However despite the narrow trading range I still do not want to be short the market at this time.
June FTSE
The FTSE again tested its all-time high at 7745 before having a small sell-off. I am still flat and today I will again raise my sell level to 7770/7810 with a higher 7845 stop. Cable is back above key 1.3500 support level having briefly traded below this area yesterday. Sterling is oversold and is due a rally which in turn should limit the FTSE from rising from here. However a sustained break of 7750 is bullish despite the FTSE being severely overbought. I will also leave my buy level unchanged from 7610/7650 with a 7580 stop.
Dow Rolling Contract
Twice the Dow traded lower to a price of 24645 which just missed my 24630 buy level before having a nice 150 point rally. I know a lot of members buy in front of my buy orders and if you did this in both the Dow and S&P yesterday then you had a nice gain. This is still a bull market where short positions are risky and today I will move my buy level higher to 24540/24650 with a 24470 stop. The McClellan Oscillator improved to close at +67 while the VIX fell 8% to close at 13.42. Keep an eye on the VIX as a close above 16 is a buy signal and if this happens we will see the S&P and Dow trading lower.
June NASDAQ
The NASDAQ just missed my sell level at 6970 before trading lower and I am still flat. Today I will leave my sell level unchanged from 6970/7020 with the same 7065 stop. Meanwhile I will also leave my buy level unchanged from 6800/6850 with the same 6760 tight stop.
June BUND
I am still flat the Bund which had a nice rally after I posted yesterday morning before trading lower this morning. As I mentioned yesterday it is only a matter of time before we see an acceleration lower in the Bund as yields at 65 bps are not sustainable when you see the US 10 Year Treasuries yielding 3.10 %. The Bund has huge support at the April low of 157.48 and the February low at 157.30 and today I will continue to be a buyer on any dip lower to 157.10/157.50 with the same 156.80 stop. Remember a break and close below 157.20 for 2/3 days is a sell signal.
Gold Rolling Contract
The DSI for Gold has now fallen to just 10% bulls. The market tried to rally but now has formidable resistance at its 200 Day Moving Average at 1303. Today I will now lower my sell level slightly to 1305/1312 with a 1318 stop. Gold has good support from 1269/1277 and today I will be a buyer on any dip to this area with a 1262 stop.
Silver Rolling Contract
While Gold has broken below its May 1 high, Silver has so far held its equivalent 16.03 low price on that day with a 16.17 low print yesterday. The DSI has also dropped to just 10% bulls which is consistent with a tradeable low in the past. I am still long at 16.50 and today I will look to add to this position on any further move lower to 16.15 with the same 15.85 stop. I will now raise my T/P level on this position to 16.65 and if my second buy level is filled I will then lower my T/P level to 16.45.
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