The centrepiece of yesterday’s attention was always going to be the ECB Policy Meeting. After the thunderclap warnings and expectations into the December meeting and then disappointed expectations, was yesterday’s meeting going to be a repeat of the real deal?. It has been more toward the latter that has transpired, at least as far as using all available tools in terms of lower/negative rates, boosting QE, including to purchase corporate debt and support for bank profits by paying banks to lend. There was certainly the push further toward if not into negative rates as a feature, but more and Dragi downplayed expectations of further rate cuts as the main future policy instrument.
To mark my 1000th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2500 for my Platinum Daily Commentary which includes ¼ updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested please email me on bryan@tradernoble.com for details.
For anybody following my Platinum Service on what turned out to be one of the most volatile trading 24 hours of the year my Platinum Service made 260 points yesterday and is now ahead by 1205 points for March having made 2265 points in February and 3365 points in January. Since I started this service last June it has made over 21,000 points.
The ECB cut its main Refi Rate and Marginal Lending Facility Rate by 5bps, to 0.00% and 0.25% respectively (no cut was expected in these), while the Deposit Facility Rate was cut by 10bps to -0.40%.
But the future emphasis of policy has seemingly shifted with more emphasis on direct support for bank lending. There was certainly something in the air suggesting the ECB is switching tack and this did subsequently get the market’s attention. ECB President Dragi ended his press conference by saying ‘ we do not anticipate reducing rates further’. Instead the ECB hopes that it will spur the Euro-Zone economy and help out flagging bank profitability by coercing banks to use its new borrowing facility.
In summary the ECB is now offering banks a new unlimited liquidity facility, which will start in June 2016 with four operations (one per Quarter ending March 2017) where banks can borrow unlimited amounts at whatever the prevailing MRO is which at this time is zero. But if banks lend that money, they can get additional discounts to a maximum of the current -0.4% Deposit rate. In other words banks that fulfil reasonably meagre lending requirements could be paid by the ECB to lend. What is not to like about that? Banks will also be able to transfer prior TLTRO and LTRO borrowing for the new cheaper version (provided this money was then lent out) to increase profits further. Hats off then to the ECB addressing the concern that negative rates could have on bank profits, concern that had stemmed from resistance from banks to offer retail negative deposit rates, funding being supported from the ECB.
It has been a topsy-turvy reaction in European markets. The EUR/USD was trading at 1.0975 into the ECB, it dropped to 1.0822 as news of a larger-than-expected package emerged, only to reverse through 1.12 on what was another similar upside Key Day Reversal to the December 3 meeting as the market took its lead from the no further rate cut comments. European bank stocks initially surged, up 5.1% in the first hour or so after the announcement, but ended the session down 0.52%. As a result of this turnaround both the German Bund and German DAX had significant downside Key Day Reversals.
This morning on the economic front we already had the release of the German Wholesale Price Index which came in weak at -0.5% versus last month’s -0.4% print. At 9.30 am we have the UK Trade Balance while on what is a very light day for economic data the only US data due is Import Prices at 1.30 pm.
March S&P 500
What an incredible 24 hours with the S&P having traded over 2010 on the ECB news only to following the European Indices lower to make a 1967.50 low print before turning around in the last two hours of trading to close at 1989 and this rally has continued overnight with the S&P back trading at 2010 as I write this commentary. Initially my S&P plan worked well as after the S&P traded higher to my 2007 sell level I cut this position way too early at 2000. Yesterday I was in London doing a live interview with Sara Walker from IG Index after the ECB made their announcement ( a copy of which I will put at the end of today’s commentary) making it difficult for me to keep on eye on my own trading as when I got to Gatwick Airport the Wifi was very weak. Incredibly and thankfully we had no orders in the DAX yesterday fell nearly 600 points from its post Dragi press conference I emailed my Platinum members to reduce their S&P buy level to 1975 but unfortunately I forgot to lower my stop and I was stopped out of this position near the low of the day at 1969 and I am now flat. For anyone who used my 5 Handle Rule to buy back into the S&P this tactic worked really well but unfortunately as I had no access to the markets I missed this opportunity myself. With the S&P back above 2000 this morning and the fact that we still have this massive ‘Open Gap’ from the start of the year from 2012/2035 plus both the FOMC Meeting and March Futures and Options Expiration next week it makes it very difficult to be short until we get these two major events out of the way. Remember historically whatever low is made in the S&P on the Thursday/Friday in the week before Expiration tends to be the low and unless something dramatic happens from here this will again be the case. This morning with the S&P trading at 2010 we have a massive ‘Gap’ to last night’s close at 1989 and I would expect some of this gap to be filled when the US markets open. Today I will be a small seller on any further rally to 2019/2025 with a 2031 stop. I will also look to buy the S&P on any dip lower to 1992/1999 with a wider 1985 stop. If I am taken short and subsequently stopped out I will be a more aggressive seller in front of 2040 with a 2055 stop.
EUR/USD
My Euro plan worked well with the Euro trading lower to my 1.0870 buy level before having a subsequent massive rally to over 1.12 which enabled me to cover this position at my 1.0950 T/P level and I am now flat. With the equity markets rallying this morning the Euro is back trading at 1.11. The Euro should have decent support at the 1.1060 level and today I will be a small buyer from 1.1025/1.1065 with a 1.0990 stop. I still do not want to be short the Euro at this time as it is clear to me the Germans/Bundesbank do not want the Euro any lower.
June Dollar Index
I have now rolled to the June Contract as the March Contract expires on Monday. The June Contract is currently trading with just a four point premium to the March Contract. Yesterday My March Dollar plan worked well with the Dollar trading higher to my 98.20 sell level following the ECB announcement before subsequently having a huge 250 point move to the downside which enabled me to cover this position at my 97.65 T/P level and I am now flat. Yesterday’s move lower resulted in another significant downside Key Day Reversal. Today I will look to sell the June Contract on any move higher to 97.10/97.50 with a 97.80 stop.
March DAX
Thankfully as I mentioned in the main commentary above that we had no trading calls in the DAX yesterday as yesterday’s reaction was something that I feared but I must confess even I am surprised by the extent of the 250 point rally followed by its near 600 point sell-off only to rally over 300 points off its evening low to today’s high print. The DAX has strong resistance from 9800/9850 and as we know from two weeks ago very strong support at the 9200/9300 area. Today I will be a small seller on any further rally to 9780/9840 with a tight 9875 stop. Given the extent of yesterday’s Key Day Reversal I do not want to be long the DAX at this time.
March FTSE
When I was in Gatwick Airport yesterday afternoon I emailed all my Platinum Members to cancel their buy levels in the FTSE and as a result I am still flat. The FTSE also had a downside Key Day Reversal with yesterday’s move and was the first market to sell-off after rallying initially on the ECB Rate cut. Today I will be a small seller on any further rally to 6170/6200 with a 6230 stop. My only interest in buying the FTSE is on a dip lower to 6010/6050 with a 5985 stop.
Dow Rolling Contract
My Dow plan also worked well as the market traded lower to my 16890 revised buy level before having a nice rally which enabled me to cover this position at my 16960 T/P level and I am now flat. With the Dollar starting to weaken again the Dow is probably the safest of the US Indices to buy on dips. Today I will be a small buyer of the Dow on any dip lower to 16980/17040 with a 16930 stop as I do not want to be short this market ahead of the FOMC next week.
June BUND
It is a long time since we have seen price action in the BUND that we witnessed yesterday with the BUND initially trading higher to my 163.20 sell level with a 163.40 high print before having a massive 250 point sell-off which enabled me to cover this position at my 162.65 T/P level. Unfortunately I also had a buy level in the BUND which was filled at 161.40 before subsequently stopping me out of this position near the low of the day at 161.10 which is really frustrating when you see the BUND trading higher at 161.80 this morning. I am still flat and I have to respect yesterday’s Key Day Reversal and for this reason I will look to sell the Bund on any rally higher to 162.25/162.55 with a 162.80 stop.
Gold Rolling Contract
Unfortunately Gold just missed my 1235 buy level with a 1237 low print before it too rallied nearly $40 to also post its own upside Key Day Reversal and I am still flat. Today I will move my buy level higher to 1242/1250 with a 1235 stop which is just below yesterday’s low print.
Silver Rolling Contract
My long 15.40 Silver position was finally exited at my 15.60 T/P level and I am now flat. Silver is trading heavy and today I will now lower my new buy level to 14.80/15.20 with a 14.45 stop.
This is a copy of the interview that I did with Sara yesterday https://youtu.be/qShDl7Kd-UM
Recent Comments