The pick-up in market price action has continued in FX markets, with the EURO the star performer, not only against what proved to further weakness in the USD, but on the crosses. The AUD meanwhile has been cutting though all of the price action and is continuing do to do more work perched comfortably in the mid 79s, ahead of Guy Debelle’s speech later this morning. The AUD tested higher levels after yesterday’s solid local employment report (containing as expected top line Employment growth and faster full time Employment growth), but didn’t breach the 80 cent mark even with a softer USD. Global bond markets marked time with very little net change in the US and very slight rise in European yields.
To mark my 1375th 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 27 points yesterday and is now ahead by 727 points for July, having made 1023 points in June, 1071 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.
The interest started yesterday with the Bank of Japan making no change to its Yield Curve Control/QE policy settings, entirely as expected. But again – for the sixth time under BoJ Governor Kuroda’s stewardship – the Bank pushed out the time when they expect to reach their 2% inflation goal, adding a bid tone to the USD/JPY. The Bank was expecting to meet their target around FY18 (begins 1 April 18). They revised down their CPI forecast for FY18 to 1.5% from 1.7%, now expecting that 2% inflation would be reached around FY19. Kuroda said that risks are tilted to the downside for the economy and prices, noting that the economy was expanding moderately.
But that USD/JPY price action reversed as the USD came under renewed pressure after it was revealed that the Mueller investigation into Russian involvement in the US election is to be widened to a broad range of financial transactions involving Trump’s businesses. This pushed the USD lower by up to around 0.65%.
The seeds for a weaker USD were partly set earlier, especially after ECB President Draghi press conference following the Central Bank’s meeting. The formal released statement (pre-press conference) from the Governing Council re-affirmed that “if the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration”.
The EUR (and yields) drifted a little lower, but the price action heated up – the Euro soaring – once Draghi’s press conference got underway. He said that policy measures have continued to secure the very favourable conditions necessary to help the ‘process towards’ a sustained convergence. Last month the words ‘process towards’ were not there. Perhaps a point of semantics, but that did set the bar a bit lower.
He was firm in saying that it was unanimous in setting no precise date for when to discuss QE changes, but he did add that discussions should take place in the fall or the autumn or the fall. Bingo! The market was looking for any reasonable indication that the upcoming September 7 meeting would/could be the meeting when the ECB would announce a firm program to begin winding down QE. And that was enough for the market to run on. It’s at that meeting when there will be a full forecast review.
The ECB President also appeared not to push back too hard on the appreciation of the EUR. Instead, in response to a question on the exchange rate, he said that overall financial conditions include bank lending surveys, rates, corporate bond spreads, equities and household wealth had been broadly supportive. So not overly pushing back too hard on the Euro. That preceded the announcement of the expansion of the Mueller investigation that further took the edge off the USD.
The Pound had a mixed trading session, underperforming especially against the Euro, weighed down by Brexit and despite somewhat better than expected UK Retail Sales for June. Cable did make up some lost ground against the USD after the Mueller expansion announcement. One other big mover on the currency front overnight was a higher NZD, seemingly playing catch-up to the AUD.
This morning on the Economic Front we have UK Public Finances at 9.30 am. This is followed at 1.30 pm by Canadian CPI and Retail Sales. The only US data is the Baker Hughes Rig Count at 6.00 pm
September S&P 500
The S&P has now closed higher for 10 of the past 11 trading sessions in what is turning out to be one of the greatest bubbles of all time. Furthermore in a prolonged period of no volatility we have only had four trading sessions so far this year in which the S&P has moved more than 1% which is the lowest period since 1972. So is that market overvalued? Of course it is and perhaps egregiously so. For example the CAPE Ratio (which is the Cyclically Adjusted Price/Earnings Ratio) is at or very near to 30:1 and it has not been there since some time in 2002. It is also the highest at any time since the ratio made its low amidst the depths of the last recession when the CAPE Ratio fell to 14:1. Further, the Price:Book Value Ratio is also at multi-year highs as it has jumped through 3:1, a level not seen since just before the start of the last recession and is up from approximately 1.7:1 at the recession’s depth. I do not know what the Black Swan event will be to derail this great bubble but until we get the sell extreme that I am looking for I will continue to be a buyer on dips. However as I mentioned last week one of these large intra-day sell-offs is not coming back. I came into yesterday’s trading session short the S&P at 2471 but as is my norm I will always be flat ahead of a major event and thus I covered this position for a small loss at 2472.75 ahead of Dragi’s press conference. Unfortunately the S&P subsequently just missed my 2477 second sell level before falling and then making a slight recovery into the close. As a result I am still flat. Today I will still be a buyer on any dip lower to 2452/2458 with a 2456 stop. My only interest in selling this market is still on a rally higher to 2478/2484 with a 2489 stop.
EUR/USD
My fears that Dragi would not be able to stem the Euro’s rise certainly played out yesterday with the Euro closing at its highest level since May 2016. This move higher saw the Euro trade to my average sell level at 1.1610. I am still short in what is a severely overbought market with the same 1.1670 stop. The Euro may well test its 2015 high at 1.1710 before we finally put in a short-term top. If I am stopped out of this position I will be a more aggressive seller from 1.1710/1.1750 with a 1.1785 stop. Despite the positive price action I still do not want to be long the Euro at this time.
September Dollar Index
As I was already short the Euro I waited to buy the Dollar which I did at 94.00. Again as I did not want to have two long Dollar positions overnight I emailed my Platinum Members to exit any long position at 94.10. This exit came despite the DSI reading in single digits. Today I will again look to buy the Dollar on any dip lower to 93.50/93.85 with a 93.15 stop.
September DAX
My DAX plan worked well with the DAX trading lower after the Dragi press conference to my 12390 buy level before rallying to my 12425 T/P level and I am now flat. The DAX has good support at 12300 which is the Double Bottom from last month. Today I will again look to buy the DAX on any dip lower to 12260/12320 with a 12210 stop. I still do not want to be short the DAX at this time.
September FTSE
The continued weakness in Sterling saw a huge rally in the FTSE today and I am still flat as my buy level again went unchallenged. I do not want to chase the market higher from here and today I will be a small seller on any further rally to 7470/7510 with a 7540 stop. The 7450/7500 is strong resistance which hopefully should lead to a sell-off after any initial test. Given how overbought the FTSE is trading I do not want to be long the market at this time.
Dow Rolling Contract
Unfortunately the Dow missed my 21710 sell level with a 21679 high print before spending the rest of the trading session on the weak side. Yet again the Dow did not make a new all-time closing high while the S&P did thus creating a small negative divergence between the two main US Indices. Given how weak the US dollar is trading it was a surprise to me how weak the Dow is trading. Today I will lower my sell level slightly to 21690/21750 with a 21810 stop. Again if I am taken short and subsequently stopped out of this position I will be a more aggressive seller on any further rally higher to 21850/21920 with the same 21980 stop.
September BUND
Unfortunately the Bund also missed my sell level by a few points before trading lower and I am still flat. The Bund did have a late come back after the DAX got hit and today I will leave my sell range unchanged from 162.35/162.70 with a 162.95 stop.
Gold Rolling Contract
Given how weak the US Dollar is trading I would have thought that Gold would have rallied further. As mentioned yesterday, Gold has traded sideways all year and I am reluctant to chase this market higher. Today I will leave my buy range unchanged from 1222/1230 with a 1216 stop.
Silver Rolling Contract
Yesterday’s frustrating trading session was best summed up by Silver which missed my 16.10 buy level with a 16.14 low print before spending the afternoon accelerating to the upside. Today I will now raise my buy level to 15.90/16.25 with a 15.60 stop.
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