The US Dollar has resumed its downtrend with Euro strength the main culprit and with USD Indices trading sub key support levels the big question is how long will the Dollar fall? After yesterday’s soft data and ongoing repricing of RBA expectations the AUD is the G10 underperformer. Equities remain volatile and aside of currencies and higher Bond Yields the current reporting season is a big source of volatility. Expect more of the same with Apple beating expectations after it reported its earnings after the bell.
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For anyone following my Platinum Service it made 22 points yesterday on the first trading session of February having made 879 points in January, 946 points in December, 823 points in November and 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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The aftermaths from Wednesday’s FOMC meeting has resulted in a solidification of a March FOMC hike (now fully priced) and a bear steepening of the US Treasury yield curve. 10y UST are currently trading at 2.78%, 8.3bps higher over the past 48 hours and although European yields have also moved higher, their rise has not been quite to the same degree. 10y UK gilts closed up 2.1bps to 1.53% and 10y Bunds are up 2.4bps to 0.72%.
So higher rates differentials are not supporting the US Dollar. The DXY Index is down 0.50% and given the break of key support levels, the move sub 89 has increased concerns over the potential of a bigger slide in the greenback. Euro is again the main culprit, after initially trading with a softer tone after I posted yesterday morning which saw the pair briefly trade sub 1.24, the currency has been on a steady rise and now trades at 1.2510. Although the Euro was already on its way, ECB Nowotny helped the cause noting that the ECB should end the bond-buying programme, while earlier, Bloomberg ran a story that some ECB officials are said to want to provide the market clearer guidance on interest rates. So on the one hand the USD is starting to look oversold, but the repricing of the Euro and expectations that other central banks will follow the ECB in removing their easing measures (amid a broad global growth recovery) remains the dominant theme.
After yesterday’s softer than expected building approvals number, the market has continued to reprice RBA rate hike expectations (a first rate hike is now not seen until February 2019, while early this week a first hike was fully priced in November this year). So given this backdrop the AUD drifted lower overnight, briefly trading sub the 80c mark. Later in the session amid a soft USD environment, the pair has recovered and currently trades at 0.8015, for now a break above the 0.8160/70 remains a key resistant level.
The Japanese Yen has been the other underperformer (-0.20%). USDJPY now trades at 109.65, early days but after last week’s inability of the pair to trade sub 108 along with a reassertion of Governor Kuroda and other officials that the Bank will retain its accommodative policy, it seems that the USD/JPY relationship with US Treasury yields is reasserting itself.
Meanwhile sterling has largely managed to keep pace with EUR despite the soft UK data and negative Brexit headlines. The two most read stories on the FT have the headlines ‘’EU rejects Brexit trade deal for UK finance sector’’ and ‘’EU moves to stop post-Brexit bonfire of regulation’’. Talk is toughening up on Brexit negotiations but I still expect a transitional deal to get negotiated next month which will help take Brexit off the front pages and support Sterling.
As for equities, while they may be wobbling amid a higher yield environment, drilling through sectors and shares performance a lot of the volatility is coming from companies reporting their earnings. For instance yesterday, after a solid report, eBay jumped 15.33% ,Mastercard solid sales and profits helped the stock rise 3.24%, despite concerns over a negative impact from tax reform. Meanwhile, UPS disappointed after acknowledging an increase in costs from service delays, the share currently trades 5.66% down. So while equities ability to sustain higher yields is a macro theme, the ongoing reporting season is important too.
Finally commodities have had a relatively good 24 hours, amid a softer USD environment with the move higher led by oil prices (Brent +0.7, WTI +1.2%) . Nickel has outperformed (+3%), but gold and iron ore are little changed.
This morning on the Economic Front we have UK Construction PMI at 9.30 am and this is followed at 10.00 am by Euro-Zone PPI. At 1.30 pm we have the US Non-Farm Payrolls, Unemployment Rate and the all-important Average Earnings. At the same time we get the latest Durable Goods Orders. Finally at 3.00 pm we have the University of Michigan Consumer Sentiment.
March S&P 500
Yesterday was extremely frustrating with the S&P just missing my 2808 buy level with a 2809.50 low print before rallying 26 points and I am still flat. With Non-Farm Payrolls at 1.30 pm I would expect this volatility to continue. Incredibly the McClellan Oscillator closed at the same -168 print last night which was the same as Wednesday’s close. Today I will lower my buy level slightly to 2795/2806 with a 2789 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 2777/2784 with a 2771 stop. As it is a weekend I do not want to be short the S&P at this time.
EUR/USD
The Euro traded higher to my 1.2510 sell level. I am still short and will now only add to this position on any further move higher to 1.2560 with a 1.2590 stop. I will now raise my T/P level on this position to 1.2480 and if this happens ahead of the NFP data I will be back with a new update for my Platinum Members.
March Dollar Index
The Dollar was weak yesterday with the market trading lower to my 88.60 buy level. I am still long and will only add to this position on any move lower to 88.00 with a 87.70 stop.
March DAX
The strength of the Euro is really hurting the DAX. It is a long time since I have seen the DAX fall over 300 points while the Dow was essentially flat after a wild trading session. Yesterday the DAX traded the whole of my buy range for an average buy level at 13130 before stopping me out of this trade at 13050 and I am now flat. The only consolation was the fact that the DAX fell another 100 points breaking some key support points in the process. The DAX has strong support at 12700 and a break and close below here is a very important Long Term sell signal. Ahead of this level the DAX has minor support at 12850 and today I will be a small buyer from 12790/12850 with a 12750 stop. If I am taken long and subsequently stopped out of this position I will be an aggressive buyer on any further dip lower to 12650/12720 with a 12610 stop.
March FTSE
As I was already long the DAX I waited to buy the FTSE which I did at 7440. Subsequently I emailed my Platinum Members to exit any long position at 7460 and I am now flat as just like the DAX above the FTSE closed weak. This morning the FTSE is testing its 200 Day Moving Average at 7420. Longs are risky but the market is severely oversold. Today I will now be a buyer from 7370/7410 with a 7340 tight stop.
Dow Rolling Contract
What a volatile trading session with the Dow trading lower to my 26000 buy level with a 25943 low print before incredibly rallying over 350 points before the market again gave up 250 of these points into the close. As I was down early on the back of my DAX loss I spent the rest of yesterday trying to scramble these points back with the result that I unfortunately covered my long Dow position way too early at 26050 and I am now flat. The only consolation was just as I emailed my Platinum Members the Dow rallied strongly which hopefully gave all members a better exit level. If the Dow breaks 26070 the market may not come back this time and could well accelerate to the next support level at 25850. Today I will again look to buy the Dow on any dip lower to 25810/25890 with a 25740 stop. Despite the negative price action I still do not want to be short the market at this time.
March NASDAQ
It took a while but finally the NASDAQ traded lower to my 6895 buy level before rallying to my 6920 T/P level and I am now flat. Today I will again look to buy the NASDAQ on any dip lower to 6850/6890 with a 6810 stop.
March BUND
Thankfully the BUND rallied to my 158.75 target level with a 158.80 high print shortly after lunch. Personally I covered my 158.60 average long position at 158.67. The BUND had a bad close as the market broke its 200 Day Moving Average from 158.60/158.80 to close on the low of the day at 158.15. This is not encouraging but against that the market is severely oversold and the key will be to see if the Bund regains some of these losses by close of business this evening. I am not going to give up on this market yet and today I will again look to buy the Bund on any further dip lower to 157.50/157.90 with a 157.15 stop.
Gold Rolling Contract
The weak US Dollar is certainly helping Gold but with the Daily Sentiment Index at extreme levels it is difficult to be long of Gold. However with the NFP data at 1.30 pm ahead of a potential volatile weekend I am going to stay flat Gold and observe from the sidelines.
Silver Rolling Contract
Silver continues to lag the rally in Gold. I am still flat and today I will now raise my buy level to 16.65/17.05 with a 16.30 stop.
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