Coming into this week, I was suggesting that EUR/USD was more likely to test 1.23 than 1.24 given improved risk sentiment and greatly reduced fears that the Fed was set to lift its 2018 ‘’dots’’ at next week’s FOMC meeting, following the fall-back in average hourly earnings growth reported in the February US payrolls report. We can attribute this mostly to a firmer US dollar for which President Trump’s new chief economic adviser Larry Kudlow looks to be responsible (more below). The AUD is sitting right at the bottom of the G10 FX scoreboard, followed by the NZD and CAD. Kudlow also looks to be responsible for this.
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Following confirmation of his appointment as Gary Cohn’s replacement at the head of President Trump’s Council of Economic Advisers on Wednesday afternoon, former Bear Stearns commentator and CNBC contributor Larry Kudlow was quickly on air spouting forth his views. Kudlow’s opening lines were ‘’I would buy King Dollar and I would sell Gold’’. He added that no-one has ever devalued their currency into prosperity and that he would like to see the dollar a ‘’wee’’ bit stronger. This helped the DXY Dollar index to close 0.5% higher.
On trade, while making clear he is not a fan of indiscriminate tariffs and that he was happy Canada, Mexico and Australia are to be excluded from steel/aluminium tariffs, he noted that ‘’the EU has quotas on cars and the US has to pay high VATs in the EU’’ and that ‘’NAFTA needs to be re-upholstered in many ways’’. More pertinent to the underperformance of the AUD and other commodity currencies, he also indicated the administration was readying a larger round of tariffs against Chinese imports. China has earned a ‘’tough response’’ for not playing by the rules of trade and added ‘’China needs a comeuppance on trade, I believe that”.
Elsewhere in currencies, the NOK has bucked the trend of commodity currency weakness elsewhere after the Norges Bank brought forward its estimation of when policy will likely be tightened to after the summer 2018 from early 2019. This is the fourth consecutive meeting at which the Bank has brought forward its rate hike timing and follows a lowering of the inflation target from 2.5% to 2%.
Sterling has also been an outperformer, albeit still marginally down versus the USD, aided by the speculation that a post-Brexit transitional deal will be agreed in time for next week’s EU Summit. Brexit Secretary David Davis said he expected the deal to be finalized next week. He meets the European chief negotiator Michael Barnier on Monday ahead of the EU Summit.
Stock markets have not embraced Mr Kudlow nearly as warmly as the FX traders, the S&P 500 just closing 0.1% lower and the NASDAQ -0.2% (though the Dow is up 0.5%). Concerns over a raft of new tariffs against China, and China’s potential response looks to be weighing, as too perhaps the proximity to next week’s FOMC meeting.
The latter, plus decent regional PMI data (Philly Fed and Empire State manufacturing surveys) and still-low weekly jobless claims, looks to have prevented further slippage in US bond yields (10s +0.5bps to 2.82%). Commodity prices are mostly a bit lower, though oil is up about 30 cents.
This morning on the Economic Front we have Euro-Zone CPI at 10.00 am and this is followed at 12.30 pm by US Housing Starts and Building Permits. At 1.15 pm we have Industrial Production. Finally at 2.00 pm we have the University of Michigan Consumer Sentiment and the JOLTS Job Openings.
June S&P 500
It took a while but finally late in the US session the S&P traded lower to my 2748 buy level before rallying to a 2759 high overnight. As I did not want to hold a position after the close I covered this position at my revised 2751 T/P level and I am now flat. So far the S&P is holding the 2736/2750 support level and with the FOMC Meeting on Wednesday I do not see a sustained move lower ahead of this key Meeting. Today I will again look to buy the S&P on any dip lower to 2737/2745 with a 2730 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further move lower to 2715/2725 with a 2709 stop. Ahead of the FOMC Meeting I do not want to be short the S&P.
EUR/USD
The Euro traded lower to my 1.2325 buy level before having a small rally. Following Kudlow’s comments I emailed my Platinum Members to exit any long Euro position at 1.2335 and I am now flat. As I have mentioned for the last two weeks the key level to watch in the Euro is 1.2255 as a break and close below here this evening is a sell signal with a target price of 1.2045/1.2085. Today I will be a small buyer on any dip lower to 1.2220/1.2260 with a tight 1.2190 stop.
June Dollar Index
The Dollar rallied as expected to my 89.50 T/P level on my latest 89.25 long position shortly after I posted yesterday morning and I am now flat. Today I will again look to by the Dollar on any dip lower to 89.10/89.40 with a 88.70 stop.
June DAX
I am still reluctant to chase the DAX higher and today will leave my buy level basically unchanged from 12160/12230 with a higher 12105 stop. I still do not want to be short the DAX at this time.
June FTSE
The FTSE just missed my 7030 buy level before rallying and I am still flat. Today I will lower my buy level slightly to 6980/7020 with the same 6950 stop. Given the huge 85 point discount that the June Contract has in relation to the Cash FTSE Market I do not want to be short the market at this time as these two prices have to correlate ahead of the expiry of the June Contract in three months time.
Dow Rolling Contract
The Dow tried to break the key 24950/25050 resistance level shortly after the US Markets opened before selling off again and I am still flat. Today I will raise my buy level to 24610/24730 with a 24535 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any dip lower to 24210/24320 with a 24150 stop.
June NASDAQ
Yesterday I put the wrong buy range on the NASDAQ from 7035/7085 which should have read 6935/6985. As one member pointed out the NASDAQ was trading at 7071 when I posted before rallying 10 points. Apologies for the error and today my buy level will be from 6950/6995 with a 6920 stop and a 7025 T/P level if executed.
June BUND
There is no stopping the rally in the Bund which again rallied strongly after I posted yesterday morning. As I have consistently said the Yield on the Bund is insanely low but you have to respect the price action which has been bullish for most of the past four weeks. Today I will raise my buy level to 157.40/157.80 with a 157.10 stop.
Gold Rolling Contract
Gold just missed my 1312 buy level overnight before rallying small and I am still flat. Today I will lower my buy range to 1298/1307 with a 1292 stop.
Silver Rolling Contract
No change as I am still long at 16.66 with the same 17.05 T/P level as I patiently wait for Silver to breakout. I will still lower my T/P level to 16.70 if Silver hits my second buy level at 16.25. Meanwhile my stop remains unchanged at 15.90 and if this happens I will be back with anew update for my Platinum Members.
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