The Australian Dollar was the biggest mover in FX yesterday, down 1.2% to 0.7932 in response to dovish headlines from Governor Lowe and another sharp fall in the iron ore price (-5.1%); Australian Bonds also outperformed with 3- year futures up 5-6bps. The market elsewhere was more settled with the US Fed meeting on Wednesday not spooking the market – US Treasuries traded in a tight range, equities were only slightly lower (S&P500 -0.2%), while the VIX sits at 9.7. First up to the Aussie. The AUD was the weakest on the G10 leader board, down 1.2% to 0.7932. Around 0.5% of the fall occurred directly after Governor Lowe’s speech. The market interpreted the speech as dovish given comments that a rate rise was not imminent: “a rise in global interest rates has no automatic implications for us here in Australia”; in the Q&A Dr Lowe also downplayed the likelihood of a near term rate hike “not for some time”.
To mark my 1425th 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 24 points yesterday and is now ahead by 256 points for September, having made 1560 points in August, 1096 in July, 1023 in June, 1076 in May, 1375 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 other factor weighing on the Aussie to some extent was another large fall in the iron ore price. The benchmark 62% spot fell 5.1% to $66.1 a tonne – its lowest level since July. Futures also suggest another sizeable fall today with the DCE down 2.99%. Also out yesterday was S&P cutting China’s sovereign credit rating by one notch to A+ from AA-. There was little market reaction to the news with S&P’s moves merely bringing the rating in line with the other major rating agencies. Driving the downgrade were concerns that rapid credit growth was adding to economic and financial risk – a point every man and his dog would be able to tell you.
The other big loser in FX was the Kiwi (-0.7% to 0.7307) with the fall coinciding with the weakness in the Aussie —the market seems to have taken some inferences for NZ from Dr Lowe’s speech in light of the RBNZ’s OCR review next week. Also weighing was the final poll ahead of the election on Saturday that reveals a too-close-to-call outcome with the incumbent Nationals at 45.8% and a combined Labour/Greens vote at 44.4%. In the NZ parliament 62 seats are need to form majority government and the poll places National on 59 seats and Labour/Greens at 54 – both short of a majority and needing the support of another party, likely NZ first.
The two biggest positive movers were the Pound (+0.6%) and the Norwegian Krone (+0.8%). The Pound was supported on leaked details of PM May’s speech later today, suggesting she has the full support of the cabinet and the UK is willing to keep paying into the EU until 2020. It seems a soft Brexit is in the wings.
As for the Krone, the Norges Central Bank met. While the policy rate was left unchanged, the new rate forecast was a little higher towards the end of the forecast period. Nevertheless, Governor Olsen said he expected the first rate hike not until “well into 2019”.
Other major currency pairs were more subdued. The US dollar fell (DXY -0.3%), while the Euro rose (+0.4%). The Yen fell (-0.2%) with little reaction to the BoJ policy announcement yesterday — the only surprise was one dissenter who argued there was little chance of reaching the BOJ’s inflation target by the projected time frame of around 2019.
As for Interest Rates, US Treasuries traded in a tight range between 2.24-2.28 and ended the day unchanged at 2.28%. December pricing for a Fed rate hike sits at around 70% according to Bloomberg WIRP, up from the 50% chance before the FOMC Meeting. Nevertheless, there is still only 1.5 rate hikes priced by the end of 2018 compared to the Fed’s dot points of four and it is likely the market will need to see some better inflation figures before market pricing shifts much more.
This morning on the Economic Front we have German and Euro-Zone Services/Composite PMI at 8.30 am and 9.00 am respectively. This is followed at 11.00 am by UK CBI Trends/Total Orders. At 2.30 pm we have Canadian Retail Sales. Finally we have US Manufacturing PMI at 2.30 pm.
There are also three Fed speakers – Williams, George and Kaplan. Williams (non-voter) and Kaplan (voter) are the ones to watch.
December S&P 500
The S&P is opening lower this morning on the back of North Korea’s leader Kim who said ‘’that deranged Trump will pay for speech to UN’’ My own view is that we are in for a rocky few weeks before the market regroups and rallies into year-end and this move higher could be the melt-up final phase of this rally. The S&P has been above its second Standard Deviation at 2240 since last November and could well test its third STD at 2792 after the coming sell-off finishes. Today is the Autumnal Equinox which in the past has led to some significant declines across all asset classes coming on top of the number of hurricanes and earthquakes to hit over the past few weeks. As I mentioned yesterday the 2505 level is key and a break and close over this level for 1/3 weeks could well see the start of this melt-up phase for the S&P. Today I will now lower my sell level to 2505/2512 with a 2517 stop. I will also lower my buy level slightly to 2478/2484 with a 2473 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2460/2466 with a 2455 stop.
EUR/USD
The Euro continues to remain bid with each sell-off attracting buyers with the market now trading over 100 points higher after the post-FOMC sell-off on Wednesday. Today I will move my buy level higher to 1.1840/1.1880 with a 1.1810 stop. 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 1.1735/1.1780 with a 1.1695 stop.
December Dollar Index
Late yesterday afternoon the Dollar traded lower to my initial 91.90 buy level. As I wanted to be flat overnight I emailed my Platinum Members to cover this long position at 92.00 before the market subsequently rallied to a 92.10 rebound high and I am now flat. Today I will again look to buy the Dollar on any dip lower to 91.00/91.30 with 90.70 stop.
December DAX
On Sunday we have the German Elections. There are 630 seats in the German Bundestag and presently the CDU/CSU has 309 of them with the SPD holding 193. Die Linke ‘’The Left’’ party has 64 seats, the Greens have 63 and there is one ‘’Independent’’ Member. Interestingly there are no members of the Bundestag presently from either the Free Democrats and or from AID… The Alternative for Duetschland… because the previous Federal Election saw neither of the latter centre-far-right parties were able to get past the 5% threshold needed for representation. They both shall this time however. The question shall be whether Ms Merkel will chose to continue her strange coalition with the SPD that has been in place since the last Federal Election or shall chose to align herself and the ‘’party’’ with the AID and the Free Democrats. One of the leaders of the AID, Mr George Pazderski, said that if the AID are kept out of government it will prove to be a very vocal opposition party. The latest poll is 37% for CDU/CSU against 23% for the Social Democrats compared to mid-April when they were tied. There is no doubt that SPD leader Schultz has failed miserably.
I am still flat the DAX which is guaranteed to be volatile come Monday morning. Today I will leave my buy level unchanged from 12450/12505 with a 12410 stop. The DAX has strong resistance from 12710/12760 and I will be a seller in this range with a 12810 stop.
December FTSE
After last week’s sell-off in the FTSE on the back of the change in tactic by the Bank of England, the market has struggled to regain any of these loses. I am still flat the FTSE and today I will now lower my buy level to 7135/7165 with a 7105 stop especially as the market came close overnight to yesterday’s 7185 buy level before having a small rally. Given how oversold the FTSE is trading I still do not want to be short the market at this time.
Dow Rolling Contract
After nine consecutive positive closings for the Dow, we finally saw a small 0.25% correction yesterday as flagged by the waning McClellan Oscillator. The MO closed last at +47 which is the fourth day in a row that the MO has closed lower. I am still short in tiny size at 22030 and today I will again look to add to this position in a bigger stake size on any rally back to 22430/22480 with a 22530 stop. My only interest in buying the Dow is on a decent sell-off over the coming days to 21835/21960 with a 21780 stop. If the Dow trades to my buy range I will be an aggressive buyer in this area.
December BUND
I am not having much luck this month with the Bund just missing my 160.65 buy level with a 160.66 low print before rallying strongly and I am still flat. Today I will now raise my buy level to 160.45/160.80 with a 160.15 stop. I still do not want to be short the Bund ahead of Sunday’s German Election.
Gold Rolling Contract
Gold just missed my 1283 buy level with a 1287.50 low print before rallying small this morning on the back of Kim’s comments to Trump. I am not going to chase Gold higher and today I will leave my buy level unchanged at 1275/1283 with the same 1268 stop.
Silver Rolling Contract
My Silver plan worked well with the market trading lower to my 16.85 buy level before having 20 cent rally. I used this rally to exit my long position at my revised 16.99 T/P level and I am now flat. Today I will again look to buy Silver on any dip lower to 16.45/16.80 with a 16.20 stop.
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