Amid a range of uncertainties from Italian politics, North Korea’s tantrum, US-China trade talks, NAFTA, Brexit and ….let us not forget Iran, market moves over the past 24 hours have been relatively subdued reflecting a wait and see mode by investors. So with that in mind, US equities have ended the day marginally in the red, the US Dollar is essentially back to where it was this time yesterday and the US Treasury curve is steeper with the 10y tenor closing the session at 3.11%. Finally just after the New York it was announced that China is set to offer the US $200trade deficit reduction, if true that would be a big positive for market sentiment.
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For anyone following my Platinum Service it made 90 points yesterday and is now ahead by 792 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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After heading south during the London trading session yesterday, USD Indices are now a smidgen higher with Sterling the only G10 currency that has managed to outperform the greenback. The pound has been on a bit of a roller-coaster over the past 24hrs amid conflicting reports on the UK government internal Brexit negotiations. Yesterday reports of a backstop plan which would entail the UK remaining in the Custom union saw the currency trade up to an intraday high of 1.3569, then the pair traded to a low of 1.3476 amid conflicting reports over the validity of the agreement. Eventually, PM May conceded that her cabinet has agreed to a backstop plan for the UK to remain tied to a Customs union with the EU after 2021 until an alternative to having a hard border in Ireland can be found. The market has treated the news as a positive Brexit step, taking Sterling up to 1.3516 where it currently trades. Nevertheless, it is unclear whether there is public support for the UK staying in a Customs union and I suspect political wrangling is likely to keep Sterling volatile for a while still. The EU summit late in June is a soft deadline, but realistically the political wrangling could go on until October/November before a proposal must submitted for EU approval.
Staying with Europe, after trading down to an intra-day low of 1.1776, the Euro recovered a bit ground (now trading at 1.1810) following news that Italy’s Five Star/Northern League coalition had completed a government agreement with a briefing of the programme revealing a series of social reforms as expected (such as tax cuts, a basic income for poorer Italians, and roll back of pension reform), but importantly there was no mention of ECB debt write offs. The omission boosted the Euro and help BTPs (Italian Sovereign bonds) reverse some of the losses incurred over the previous 48hrs. Both leaders plan to ask party members to vote on the plan over the weekend before they present it to President Mattarella next week. I think the Italian uncertainty (debt issue and push for an easier path to exit the EU) is likely to linger on for some time suggesting there is more downside risk for the currency near term.
Moving on to trade news, NAFTA negotiations remain ongoing and although we had good sound bites from both Canada and Mexico, suggesting a deal still looks likely, now the deadline has been pushed towards the end of May, but then Mexico’s Economy Minister Ildefonso Guajardo added that if no agreement is reached the talks could extend beyond the July 1 Mexican presidential election. The CAD is little changed at 1.2806 with the NAFTA uncertainty offset by the move higher in oil prices. Brent traded above the $80 mark, but it has since eased back to $79.5.
We also had news that the EU seems to want to keep the Iran nuclear deal alive, but also states US sanctions will be felt on EU firms. On that score, we also had news yesterday that Total, the French group that has led foreign groups back into Iran, has decided to pull its investments out of the country, so even if Iran can sell its oil, it may not have much to sell.
Looking at US Treasury yields, the 10y tenor is at 3.11% , and the 2y yield is around 2bp lower at 2.57%. The 2y10y UST curve now trades at 54bps, 11bps higher relative to last Friday’s closing levels. Higher oil prices and strong US data releases appears to have moved momentum towards steepeners, easing concerns of US recession risk.
Finally on this last point we note that the Philadelphia Fed Manufacturing Index blasted up through expectations. The new orders component reached a 45-year high while the prices received component reached a 29-year high. It adds to the flavour of US economic data doing better than other regions at present, alongside a positive inflation dynamic.
This morning on the Economic Front we already had the release of German PPI for April which came in higher that the 0.3% expected with a 0.5% rise. Next we have the Euro-Zone Current Account and Trade Balance at 9.00 am and 10.00 am respectively. Finally we have Canadian Retail Sales and CPI at 1.30 pm.
We have no US data of note due today. However the Fed’s Brainard and Kaplan are both speaking this afternoon.
June S&P 500
I have always said that trading is a game of small margins and none more so than yesterday when the S&P just missed my 2710 buy level with a 2710.75 low print before rallying 14 Handles and I am still flat. I know a lot of members buy in front of my orders to eliminate this scenario and if you did that yesterday you made a nice gain. More and more analysts are hitting the wires saying that the stock market is overvalued and due a correction. I do not disagree with these views but as long as the S&P holds above its 50 Day Moving Average this market will continue to be a buy on dips. The S&P has strong resistance at 2750 and today I will continue to look to sell the market on any rally higher to 2743/2753 with a 2759 stop. The S&P has strong support from 2704/2712 which is the lows made over the past two trading sessions. Today I will move my buy level higher to 2706/2714 with a 2699 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 2678/2688 with a 2671 stop.
EUR/USD
I am still flat the Euro which again missed my buy level by 11 points and I am still flat. I am reluctant to chase this market higher and today I will leave my buy level unchanged from 1.1725/1.1765 with a 1.1690 stop.
June Dollar Index
My Dollar plan worked well yesterday with the Dollar trading higher to my 93.45 sell level before having a small sell-off to my revised 93.30 T/P level and I am now flat. Given the extreme Daily Sentiment Reading towards the Dollar at over 91% I will again look to sell the Dollar on any rally higher to 93.55/93.85 with a 94.15 stop.
June DAX
Thankfully we have had no sell levels in the DAX over the last two months as the market continue to rally in a stair step fashion while at the same time ignoring any sell-off in the US Indices. The DAX is now trading at 13125 with the next resistance level not until the 13230/13280 area where I will be a small seller with a 13330 stop. Given the extent of yesterday’s move higher I will now raise my buy level to 12940/13010 with a 12880 stop.
June FTSE
There is no stopping the FTSE as it closed yesterday at a new all-time high easily beating the previous 7745 record price. After the FTSE traded higher to my initial 7770 sell level with a 7782 high print the market quickly sold off 40 points and this move lower enabled me to cover my short position at my revised 7755 T/P level and I am now flat. The 7700/7730 area should act as good support and today I will be a buyer on any dip to this level with a 7670 stop. The next target level for the FTSE is from 7825/7855 and I will be a seller here with a 7885 stop.
Dow Rolling Contract
It took a few attempts but finally the Dow traded lower to my 24650 buy level before rallying to my 24710 T/P level and I am now flat. Today I will again look to buy the Dow on any dip lower to 24520/24640 with a lower 24435 stop. Both the McClellan Oscillator and VIX closed basically unchanged yesterday which suggests we may see a larger move in the Dow today. I still do not want to be short the Dow at this time.
June NASDAQ
I am still flat the NASDAQ which again just missed my sell level before trading lower. Today I will move my sell level higher to 7010/7060 with a 7110 stop. I am not going to move my buy level and I will leave it unchanged at 6800/6850 with the same 6760 tight stop.
June BUND
No change as I am still a buyer into the April and February lows from 157.10/157.50 with a 156.80 stop. Remember a break and close below 157.30 for 2/3 days is a major sell signal.
Gold Rolling Contract
No change as I am still a seller on any rally higher to 1305/1312 with a 1318 stop. Gold has good support from 1270/1277 and I will be a buyer here with a 1263 stop.
Silver Rolling Contract
I am still long Silver from earlier this week at 16.50 with the same 16.65 T/P level. I will still look to add to this position on any move lower to 16.15 with the same 15.85 stop. If my second buy level is filled I will then lower my T/P level to 16.45.
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