Focus is currently on Washington where a US Government shutdown deadline looms this weekend unless a stopgap Funding Bill is agreed. That has not perturbed US equities, which remain near their recent record high, but US Dollar Indices show a distinctly lower trend as the hours tick by with no agreement, while the US 10-year rate pushed up through 2.60% for the first time since March. At the time of timing we still await a vote on a stop-gap spending bill, with a tweet by Trump last night adding to the difficulty in getting agreement.
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With all this going on, economic data have taken a backseat. US data were mixed, but dismissed by the market fairly readily due to their inherent volatility, with a plunge in Jobless Claims following their recent upward spike; and ditto for Housing Starts, while Permits were in line. A slightly weaker Philly Fed Survey might be explained by harsh weather. On a more positive note, China data confirmed that growth was solid, with full-year GDP rising by 6.9%, its first increase since 2010. Retail sales growth was weaker than expected but all the other key indicators were slightly stronger.
Angst around the possibility of the US government shutdown may have been a factor in pushing the US 10-year rate up to as high as 2.62%, just 1bp shy of the peak in March last year and a key technical level to watch. We have been down this road many times before, with noise about the US government shutting down and possibility of defaulting on an interest payment, but the end result has always been a kicking of the can down the road and no default event. But one does not need to search hard to find reasons why Interest Rates are back up to 2.6%, with the upward trend this year easily explainable by the stronger US growth and inflation picture and higher conviction on further Fed tightening this year.
Outgoing NY Fed President Dudley gave an interview to the FT where he suggested that the Fed should put a review of its inflation target on the agenda this year, investigating the case for moving to a price level target to achieve inflation of 2% over the medium to longer run or moving to a range like 1.5-2.5%. On current monetary policy, his view seemed to be in line with the Fed’s forecast of three rate hikes this year and on the hawkish side he indicated that the balance of risks is shifting away from inflation being too low to the risk of the economy overheating.
Broadly based USD weakness has seen the AUD retest the 0.80 mark this morning, twice, finally passing it in the last few hours to sit at 0.8020. Arguably, the AUD deserved to push higher anyway following its fall after yesterday afternoon’s Employment Report, where the market chose to focus on the nudge up in the unemployment rate and ignore the stronger jobs data.
Amidst the weaker USD backdrop, EUR is hovering up around the 1.2250 mark and Sterling traded back up through 1.39 this morning. USD/JPY traded down to 110.70 and is weak
This morning on the Economic Front we already had the release of German PPI which came in as expected with a 0.2% rise.At 9.30 am we have UK Retail Sales. Finally on what is a light calendar day we have the University of Michigan Consumer Sentiment at 3.00 pm.
March S&P 500
With the US government facing the prospect of a shutdown as talks continue to struggle for an imminent settlement the S&P sold off late last night. However with the NASDAQ firm it is difficult to be short the S&P. We have been down this road many times in the past and have always got an extension as the House kicks the can down the road. However with Trump involved anything is possible especially after his ‘’tweets’’ last night. I am still flat the market and today I will lower my sell level slightly to 2807/2817 with a 2824 wider stop. Meanwhile my only interest in buying the S&P is still on a dip lower to 2748/2756 with a 2743 stop.
EUR/USD
For any member who did short the Euro at my 1.2250 initial sell level yesterday, then this trade worked well as the market had a nice sell-off back to the 1.2220 area before rallying again this morning on the prospects of a US government shut down. I did not sell the Euro myself and I am still flat, especially as I no longer want to be short the Euro as I am already long the Dollar Index. Today I will raise my buy level to 1.2150/1.2210 with a 1.2115 stop.
March Dollar Index
The Dollar traded lower to my 90.25 buy level but unfortunately has missed my 90.45 T/P level and I am still long. I will only add to this position on any further move lower to 89.70 with a now lower 89.45 stop. Meanwhile I will now lower my T/P level on this position to 90.35.
March DAX
It is hard to see the DAX trading higher given the renewed strength of the Euro. I am still flat and today I will now raise my buy level slightly to 13095/13160 with a 13045 stop. The DAX has now traded sideways for over four months and we just have to be patient and wait for the market to hit our buy levels rather chasing the market higher.
March FTSE
Frustratingly the FTSE has twice missed my 7625 buy level by 2/3 points before rallying strongly and I am still flat. I am not going to chase this market higher especially with Sterling so strong. As a result I will leave my buy level unchanged from 7580/7625 with the same 7545 stop.
Dow Rolling Contract
The Dow had a wild trading session missing my 26200 sell level with a 26162 high print before falling over 250 points. Given the expected volatility surrounding a government shut- down I am not going to chase this market lower and will only lower my sell level slightly to 26090/26190 with a 26250 stop. Meanwhile my only interest in buying the Dow is still on a dip lower to 25400/25500 with the same 25280 wider stop.
March NASDAQ
No change as I am still a buyer on any dip lower to 6670/6720 with the same 6630 stop. There is no doubt that we saw some switching out of the Dow stocks into Technology over the past 48 hours and for this reason I have no interest in selling the NASDAQ at this time even though we are trading at near record highs.
March BUND
My Bund plan worked well with the market trading lower to my 160.30 buy level before rallying 40 points. As I wanted to bank some points for yesterday’s trading session I covered this long position at my revised 160.48 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 159.50/159.90 with a 159.15 stop. Even though I am long-term bearish of the Bund I do not want to be short the market at this time.
Gold Rolling Contract
Gold is stronger this morning on the back of the weaker US Dollar and the prospect of a US government shut-down. Unfortunately the market just missed my 1316 buy level before rallying overnight. However with the Daily Sentiment Reading at 88% it is difficult to be long the Gold market at this time, especially as this indicator has worked extremely well for both Gold and Silver over the past few years. For this reason I will leave my buy level unchanged from 1306/1316 with the same 1298 stop.
Silver Rolling Contract
For the last two weeks Silver has struggled to move higher which is a worry. I always respect the price action of any market that I trade and even though Silver is back above $17 this morning I do not want to chase this move higher. For this reason I will leave my buy range unchanged from 16.40/16.75 with the same 16.10 stop.
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