It was another FX dominated session with the standout performer being the Canadian Dollar, up 1.1% after stellar Q2 GDP figures. For Canada it seems that the markets have now fully priced another rate hike by the Bank of Canada by the end of the year with a 41% chance this occurs at the September meeting (up from 27% since Wednesday). The FX market also thinks this has implications for Australia (and Norway) with the Aussie and Krone higher on the news. Movements in Bond yields were again contained (USTs -1.4bps), while equities were higher (S&P500 +0.6%; Euro-Stoxx +0.5%). If you’re a currency strategist there was a lot to digest over the past 24 hours. The US Dollar (DXY) initially continued Wednesday’s rise helped along by a weaker Euro following comments by an anonymous ECB official, but it fully reversed starting at 1.30pm to finish the session 0.3% lower.
To mark my 1400th 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 can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 40 points yesterday to close August with a gain of 1560 points, having made 1096 points in July, 1023 in June, 1076 in May, 1376 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
What happened at 1.30 pm? A plethora of data was released including the US PCE Deflators and Jobless Claims. The PCE Deflators were subdued as expected at 0.1% m/m and 1.4% y/y for both Headline and Core. Personal Income was a tenth better at 0.4%, while Personal Spending was a tenth weaker at 0.3%. However, it seems the driver of the move was Canada’s stellar GDP figures which were released around the same time. Also potentially weighing on the DXY were comments from US Treasury Secretary Mnuchin who Secretary Mnuchin: “Obviously, the short-term issues of the dollar have both positive and negative impacts for different parts of the economy,” and that “obviously, as it relates to trade, having a weaker dollar is somewhat better for us.”
Canadian Q2 GDP rose an astounding 4.5% annualised, beating expectations of a 3.7% outcome. GDP growth is now the strongest since Q3 2011 and has boosted expectations of a rate hike by the end of the year. Markets now ascribe a 90% chance of a rate hike by October, with a chance this could happen as early as September (41% priced). In response the Canadian dollar leapt and finished the session up 1.1%. Moves in Canada also spilled over to other commodity currencies with the Aussie up 0.6% to 0.7947 (Norwegian Krone was also +0.5%). Yesterday’s Capex data also supported the Aussie yesterday with 2017-18 investment expectations 6% higher than the consensus at $101.8bn and importantly showing a 4.8% lift in non-mining investment intentions. There was little reaction to the Chinese PMIs with the better manufacturing print offset by a weaker non-manufacturing number.
The Euro also had an eventual session but overall the Euro ended up 0.2% to 1.1913. Anonymous ECB officials stated that a “strong euro is worrying a growing number of ECB policymakers” and that “Euro concerns increase the chances of a delay in QE decision, or a more gradual exit from asset purchases”. A previous source last week noted that the ECB was likely to use next week’s September meeting to formally discuss a taper of the Asset Purchase Programme, but a decision would not be made or announced until the October meeting.
Also in Europe, headline inflation was stronger than expected (as indicated by the German figures on Wednesday) with inflation at 1.5% y/y (1.4% expected) but the core rate was as expected at a more subdued 1.2% y/y. The Unemployment rate was unchanged at 9.1%.
Oil continues to be volatile with WTI up 2.5% to $47.09, while Brent was stronger up 4.0% to $52.77. Gasoline in the US has now climbed to two year highs and reports suggest Hurricane Harvey has closed 23% of US refining capacity. In response the US Government has authorised a release of oil from its strategic petroleum reserves to a refinery (1m barrels in total).
This morning on the Economic Front we have German, Euro-Zone and UK Manufacturing PMI at 8.55 am, 9.00 am and 9.30 am respectively. This is followed by US Non-Farm Payrolls at 1.30 pm. US Non-farm Payrolls are expected to increase 180k. While Wednesday’s ADP Payrolls and record low levels of Jobless Claims would be suggestive of upside risks, August has tended to be a weak month for Payrolls. Nevertheless, with the level of payrolls needed to keep the unemployment rate unchanged being only 114k a month – anything north of this would continue to put downward pressure on the unemployment rate through time; the market expects the unemployment rate to be unchanged at 4.3%. For today’s report all eyes will be focused on wages given the failure of wages growth to lift significantly despite a tightening labour market. Fed officials are currently split on the near term trajectory for inflation and wages and in the July meeting the Fed stated “…they would carefully monitor actual and expected inflation developments relative to the Committee’s symmetric inflation goal”. For August, wages are expected to tick along at 0.2% m/m which would lead to a higher y/y figure at 2.6% from 2.5%. There is a risk though that with August tending to be a weak month, this could also bleed through to a softer wages print.
At 2.45 pm we have US Manufacturing PMI and this is followed by the important ISM Manufacturing and Construction Spending 15 minutes later. Finally and also at 3.00 pm we have the University of Michigan Consumer Sentiment.
September S&P 500
The S&P has now rallied over 50 Handles since last Tuesday’s low at 2421. This move was flagged by the initial improvement in the McClellan Oscillator which closed last night with a positive 96 print. Anybody short this market has had no chance to get out without a material loss as one short position after another got hit hard. If you look at the Daily chart, the S&P 100 Day Moving Average is now at 2132 while the 200 Day MA is at 2386. This is still a strong bull market and until we break these key levels the S&P continues to be a buy on dips. The fact that the S&P was able to break key resistance at 2460 easily also added to the bullish tone. As usual heading into the NFP at 1.30 pm I will stay flat the S&P and if the market subsequently dips following its release I will be a buyer on any dip lower to 2457/2463 with a 2452 stop. The S&P has resistance at 2480 ahead of the all-time high at 2488.50 and today I will be a small seller on any further rally to 2484/2490 with a 2495 stop.
EUR/USD
My Euro plan worked perfectly yesterday with the market trading lower to my 1.1830 buy level before eventually rallying back above 1.19. August is the first month since I started Tradernoble over 5 ½ years ago that I have not had one down day and as I wanted to maintain this record I covered my long Euro position too early at 1.1850 and I am still flat. Just like the S&P above I will stay flat until the NFP release and if the markets dips I will again look to buy the Euro from 1.1770/1.1815 with a 1.1740. Remember after the August NFP release the Euro fell over 100 points in a few minutes before we got a subsequent rally. Ahead of the long weekend in the US, I do not want to be short the Euro at this time especially as I am currently long the Dollar Index.
September Dollar Index
It took time buy eventually the Dollar traded lower to my 92.55 buy level. As I want to get September off to a positive start I will use any rally higher to 92.80 to exit this position. If my T/P level is not hit before the NFP release I will email my Platinum Members with an exit strategy. After the NFP release I will again look to buy the Dollar on any subsequent dip lower to 92.00/92.40 with a 91.70 tight stop.
September DAX
The DAX broke and closed over strong resistance from 11995/12040 and this area should now act as strong support. I am still flat and today I will be a buyer in this area with an 11550 stop. Despite the DAX trading in a downtrend over the past two months with the S&P so close to its all-time high I do not want to be short the market at this time.
September FTSE
The FTSE remains in a two month sideways condition with yesterday’s price action more positive than what we have seen for a few weeks. I am still flat the market and today in light of yesterday’s strong move higher I will now move my buy level higher to 7370/7405 with a 7340 tight stop.
Dow Rolling Contract
The Dow continues to underperform both the S&P and NASDAQ and I am still flat as we wait for today’s key economic data. As I mentioned yesterday I need to see break and close below 21500 for me to even think about shorting the market with a more long-term bearish stance. Until this happens this market just like the S&P above is a buy on dips especially after Tuesday’s 250 point upside Key Day Reversal. Today I will now raise my buy level higher to 21860/21920 with a 21810 stop. With the US markets closed on Monday I do not want to be short the Dow over the weekend.
September BUND
Eventually the Bund traded higher to my 165.25 sell level before having a small 20 point sell-off. As I wanted to be flat ahead of the NFP today I emailed my Platinum Members to exit this position at 165.20 and I am now flat. The bulls are still in control despite the severely overbought condition. Today I will use any rally higher to 165.45/165.85 to go short with a tight 166.05 stop.
Gold Rolling Contract
Once the US Dollar started to weaken shortly after the US markets opened Gold rallied strongly and I am still flat. In light of this positive price action I will now move my buy level higher to 1297/1305 with a 1292 tight stop.
Silver Rolling Contract
My latest long 17.35 Silver position finally worked well with the market trading higher to my 17.50 T/P level and I am still flat. The 17.76 pivot point is key resistance which given how strong Gold is trading I would have expected to have been broken already. The fact that it is not has to be respected and today I will only look to buy Silver on any dip lower to 17.05/17.35 with a 16.80 tight stop.
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