The week’s main event, ECB president Draghi post-meeting press conference, has come and gone leaving EUR/USD the best part of a cent lower, but it has been a largely Euro-centric affair with limited contagion to other G10 currencies versus the US dollar, bar the Swiss Franc. AUD/USD orbits 0.7550. The Swedish krone is the standout loser of the past 24 hours after the Riksbank lowered its anticipated rates track. It has been a good session for US stocks, largely earnings-driven but perhaps aided too by the slippage in 10 year Treasury yields to back below 3% (2.98% now).
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It was interesting that the ECB conveyed no sense of alarm or panic on the recent softening economic data and activity that is currently unfolding. In the post-meeting statement, Mr Draghi put on a brave face, insisting that the underlying strength of the economy continues to support its confidence that inflation will converge towards its mandated aim. He said, ‘’The bottom line of this discussion is in my view, it is basically caution in reading these developments, caution tempered by an unchanged confidence in the convergence of inflation to our inflation aim’’.
EUR/USD initially rallied slightly at the start of the press conference, but then fell away as it progressed. As the press congress progressed, it became evident that what we were hearing from the President was not an all-clear and that further assessment is necessary before the ECB will decide if this has policy implications such as delaying ending its bond purchases into early 2019. Indeed, later in the session a Bloomberg source story ran stating that Draghi faced down a request from the (perennially hawkish) Austrian central bank Governing Council member Ewald Nowotny that the future path of monetary policy be discussed. Lows of the session on EUR/USD just below 1.2100 (new 3-month lows) came soon after the story hit the wires.
EUR and CHF weakness has lifted the DXY dollar Index further above 91.0 (91.58 now). Looking at the charts suggests that while DXY can move higher still, it will find resistance near 92.00 (the early January breakdown level) and which is also the 200 day moving average. If so, this might spare AUD/USD a test of the 0.75 level.
Outside of FX, it has been a very good trading session for US stocks, the S&P closing up just over 1% higher and the NASDAQ by 1.6%. Facebook jumped 10% after reporting its earnings and latest user-stats after the close yesterday. Advanced Micro Devices (AMD) jumped over 12% after reporting its earnings prior to the market open. Intel has just reported after the market close and exceeded its highest street estimate on earnings (87 cents versus a range of 70 to 76) with revenue more than $1 billion higher than expect at $16.1bn and improved forward guidance. This will support the market at today’s open.
In bonds, 10 year US treasuries have struggled to hold Wednesday’s break above 3%, down 4.5bps to 2.98% now while 2 year yields are down just 0.4%. Thus the fledging curve re-steepening theme (and which looks to have been supportive of the USD) has suffered a set-back.
Commodities see oil adding back another 25 cents or so, after Brent crude added 50 cents yesterday following French President Macron’s prediction that US President Trump would pull the US out of the 2015 Iran nuclear deal which saw sanctions lifted and Iran pump one million barrels a day more oil than when the sanctions were in place. Exchange traded metals are mixed while iron ore is virtually unchanged on 24 hours ago at $65.29.
US data has been mixed, but looks to have left expectations for this afternoon’s first estimate of Q1 GDP little changed, centred on 2%. The advance report on good trade saw a much reduced deficit of $68.0bn down from $75.9bn in February, with imports slumping following the earlier post-Hurricane surge as inventories were rebuilt. This adds about 0.4% to Q1 GDP estimates according to the Atlanta Fed’s updated ‘’GDPNow’’ estimate, but fully offset by weakness in capital good shipments in the Durable Goods Order report and a fall in retail inventories of 0.4%. They are still at 2%. Overall Durable Goods Orders rose a better than expected 2.6% (1.6% est.) but ex the volatile defence and aircraft categories, they fell by 0.1% against an expected rise of 0.5%
This morning on the Economic Front we have German Unemployment at 8.55 am and this is followed at 9.30 am by UK GDP. Next we have German CPI at 12.00 pm. At 1.30 pm we have US GDP and the Employment Cost Index. Finally at 3.00 pm we have the University of Michigan Consumer Sentiment.
This afternoon both the UK Governor Carney and MPC Member Haldane are speaking at 3.00 pm and 3.15 pm respectively.
June S&P 500
My S&P plan worked well with the market trading higher to my initial sell level at 2660 before having a quick sell-off to the 2652 area before rallying hard into the close as all of Tuesday/Wednesday’s losses are now recovered. Yet again you had to be quick to cover any short position and I used this move lower to cover this position at my revised 2655 T/P level and I am now flat. After the close Intel came out with a very strong earnings report which sees their shares trading up nearly 5% and this will certainly help today’s trading. The S&P did not stay long below the 2656 support level and the fact that we broke back above here should see this level act as good support on any subsequent test. Today I will raise my buy level to 2652/2662 with a 2645 stop. My only interest in selling the S&P is on a rally higher to 2687/2696 with a 2703 stop.
EUR/USD
Unfortunately he Euro has missed any sell level that I have had all week before trading lower to my 1.2100 buy level. Subsequently the Euro rallied 30 points and I used this rally to cover my long position at my revised 1.2111 T/P level and I am now flat. If the Euro continues to build value below 1.2100 we could well see a further move lower to 1.1750/1.1800 over the coming weeks. I am still reluctant to chase the Euro lower and today I will be a seller on any rally higher to 1.2180/1.2220 with a 1.2250 tight stop. The Euro has good support from 1.1980/1.2025 and I will be a buyer in this area with a 1.1945 stop.
June Dollar Index
The Dollar has continued to rally as expected which is no surprise given the record number of Dollar longs over the past few weeks. I am still flat and today I wil again raise my buy level slightly to 90.55/90.95 with a 90.20 stop. Even though the Dollar is overbought I do not want to be short ahead of today’s US GDP Report.
June DAX
The DAX market is still on a buy signal helped by the weakness in the Euro. Thankfully we have not been short this market for many weeks as any daily weakness is being bought as both the FTSE and DAX continue to outperform the US Indices. I am still flat the DAX and today I will now raise my buy level to 12400/12470 with a 12345 stop. Even though the DAX will have strong resistance at its 100 and 200 Day Moving Averages which come in at 12690/12750 I am reluctant to sell into this market at this time.
June FTSE
The FTSE continues to rally as more and more short positions are forced to cover. The FTSE traded to a high at 7420 before selling off overnight and I am still flat. The 7310/7350 area should act as strong support after the breakout yesterday and today I will be a buyer on any dip to this area with a 7275 tight stop.
Dow Rolling Contract
With all three US Indices hitting my sell range at the same time yesterday afternoon I waited to sell the Dow which I did at a price of 24280. Subsequently we traded to an initial high at 24332 before the market fell 130 points and I used this sell-off to cover my short position at my revised 24230 T/P level and I am now flat. The Dow has now rallied over 600 points from its Wednesday afternoon margin call low as most of Tuesday’s Losses have now being recovered. The Dow has strong resistance from 24450/24550 and today I will be a small seller in this area with a tight 24630 stop. I do not want to be long the Dow at this time especially after getting caught buying the dip on Tuesday’s sell-off.
June NASDAQ
The NASDAQ traded higher to my initial sell level at 6635. As I was short the other Indices I covered this short position at my revised 6625 T/P level and I am now flat. The 10% rally in Facebook coupled with the super earnings from Intel last night make it difficult to be short this market for any length of time. Amazon closed yesterday at a new all-time high at over $1600 per share. The unexpected move higher in the market is bullish especially if we can hold the now key 6620/6670 support level. Today I will be a buyer in this area with a 6580 tight stop. I do not want to be short the market at this time.
June BUND
The Bund has been frustrating for me to trade over the past week. I have had the correct view of buying the dip but unfortunately I got stopped out twice near the lows which is extremely frustrating when you see the market rally 100 points. The break and close over 158.20 is bullish for a move back to 159. Today I will raise my buy level to 157.80/158.20 with a 157.40 stop. I will also raise my sell level to 158.95/159.35 with a 159.65 stop.
Gold Rolling Contract
Gold is weak having rejected the key 1366/1376 resistance level last week. To add to the bearish feel, Gold closed below its 100 Day Moving Average at 1319. I am still flat and as I am still long Silver I will now lower my buy level in Gold to 1295/1303 with a 1289 stop. A break and close below 1290 is a major sell signal.
Silver Rolling Contract
No change as I am still long the market at 16.85. I am not comfortable with this position given the negative price action and I will continue to leave my stop unchanged at 16.35. I will now lower my exit level on this trade to 16.70 and if either of these scenarios happen I will be back with anew update for my Platinum Members.
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