To borrow from Depache Mode, it seems markets Just Can’t Get Enough with a dovish ECB taper and increasing confidence in US tax reform seeing a rally in risk assets. European equities soared (Eurostoxx +1.3%), the Euro fell sharply (-1.2%), while US Dollar strength continued alongside a grind higher in US yields (10yr +2.7bps).
To mark my 1450th 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 38 points yesterday and is now ahead by 614 points for October , having made 447 points in September, 1560 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 1600 points.
First to the ECB meeting. The announced tapering of the Asset Purchase Program (APP) was largely as expected: asset purchases have been cut to €30bn a month from €60bn a month starting January 2018, with the purchases to continue until the end of September 2018, or beyond, if necessary. The ECB also said it would keep Interest Rates “at their present levels for an extended period of time, and well past the horizon of the net asset purchases”. Finally on reinvestment, the ECB said it would reinvest principal payments from maturing securities for an extended period of time after the end of the APP.
In response the Euro initially fell 0.6%, and then continued to fall against US Dollar strength to end the day down 1.2% to 1.1652. Bund Yields also fell sharply with yields down 6.7bps on the day to 0.42%. Why the dovish response by markets even though the announcement was as expected? The continued open endedness of the APP likely contributed, as well as ongoing uncertainty the ECB has over inflation. Draghi noted “annual rates of headline inflation are likely to temporarily decline towards the turn of the year, mainly reflecting base effects in energy prices”. And that measures of underlying inflation “have yet to show more convincing signs of a sustained upward trend”.
On the other side of the Atlantic, US Dollar strength continued with the DXY up 1.1% and now at 94.64 – the highest it has been since mid-July. While in part due to Euro weakness, the US Dollar was supported following the passing of the 2018 Federal Budget by Congress (already having been approved by the Senate). That importantly paves the way for tax reform being passed by a simple majority in the Senate. Republicans were quick to capitalise on the opportunity and stated that a more detailed tax plan is set to be unveiled to the House on Wednesday with drafting for the Bill scheduled the week of November 6. Nevertheless, tax reform will be hard fought amongst Republicans with the Budget only passing with a narrow vote despite Republicans holding a sizeable majority in the House (it passed 216 to 212; Republicans hold 239 seats).
US Bond Yields also ground higher on the news with 10-year Treasuries up 2.7bps to 2.46%. Also supportive was a Politico article that said Taylor or Powell would be the next US Fed chair – they are both seen as more hawkish than Yellen, while Taylor is seen as more hawkish than Powell. US data was mostly second-tier with Jobless Claims still low, while Inventories present slight downside risks to US GDP later this afternoon.
Meanwhile, the Aussie was hit yesterday following a speech by Deputy Governor Debelle. He noted CPI was historically overstated by an average of 0.25% a year due to substitution bias – this bias will likely end with yearly reweighting, and that “there still remains a sizable degree of spare capacity in the labour market”. Importantly though, Dr Debelle still assesses the NAIRU at 5% – unemployment is currently 5.5%. The AUD initially dipped 0.3% and then fell further alongside USD strength to end down 0.6% to 0.7660. Watch for further downside if Australia’s High Court rules Barnaby Joyce is ineligible to sit in Parliament as touched on in last week’s Daily Commentary.
This morning on the Economic Front we have the ECB Survey of Professional Forecasters at 8.00 am. This is followed at 1.30 pm by US GDP. Finally we have the University of Michigan Consumer Sentiment at 2.00 pm.
December S&P
Having got stopped out of my long S&P position on Wednesday, twice the S&P just missed my 2553 buy level yesterday before rallying and I am still flat. Today I will raise my buy level slightly to 2549/2555 with a 2543 stop. Remember a break and close below 2545 will see me look to set up short positions for a move lower to 2538, 2522 and ultimately 2504/2512 where I will be an aggressive buyer in the event we do trade this low over the coming days.
EUR/USD
The beauty of my Platinum Service is my updated emails. After the ECB announced a reduced QE, I emailed my Platinum Members to reduce their buy level in the Euro to 1.1660/1.1695. Following the whole of my buy range getting hit I am now long at an average rate of 1.1677 with a 1.1630 stop. If I manage to T/P at this level or I am stopped out of my above position I will again look to buy the Euro on any subsequent dip lower to 1.1570/1.1610 with a 1.1535 stop. As of last night’s close the Euro is trading at the bottom of its Williams Index and outside the bottom of its Daily Bollinger Band meaning we should see a snap back rally soon.
December Dollar Index
Unfortunately the Dollar has missed my buy levels over the past few days by small margins before exploding to the upside yesterday. I am still flat in what is now an overvalued market. Today I will be a small seller on any further rally to 95.05/95.35 with a 95.65 stop.
December DAX
Frustratingly the DAX just missed my 12920 buy level with a 12933 low print shortly after the European Markets opened before incredibly rallying nearly 150 points on strong volume. Thankfully we have not been short the DAX for the last number of weeks fearing a melt-up like we had in yesterday’s trading session. Yesterday’s move higher saw the DAX close at a new all-time high as yet again bears are getting slammed. Today I will now raise my buy level to 13050/13105 with a 12995 stop.
December FTSE
My long 7440 FTSE position worked well with the market trading higher to my 7455 T/P level and I am now flat. Today I will now raise my buy level to 7395/7435 with a 7365 stop. I still do not want to be short the FTSE at this time despite the weakness of the price action.
Dow Rolling Contract
Unfortunately the Dow also just missed my buy level yesterday before rallying anew. Yesterday I had 19 stock articles in my inbox of which 17 were bearish which is incredible after one brief sell-off in the market on Wednesday. For me to turn bearish we need to see some decent levels broken such as the 2545 level in the S&P as mentioned above. Today I will now move my buy level higher to 23245/23325 with a 23175 stop.
December NASDAQ
My NASDAQ plan worked well yesterday with the market initially trading lower to my 6035 buy level. Unfortunately I covered this position at my revised 6048 T/P level and I am now flat. Incredibly on the Chicago close the NASDAQ rallied over 40 points having traded heavy for most of yesterday’s session. Today I will again look to buy the market on any dip lower to 6010/6050 with a 5970 stop.
December BUND
In hindsight I should have held on to my long Bund position from Wednesday as I expected the ECB to be more dovish. It is incredible that the Bund has a yield of just 42 basis points nearly 9 years into an alleged economic recovery. Today I will now raise my buy level to 160.80/161.20 with a 160.45 tight stop.
Gold Rolling Contract
Very late in the New York session, Gold traded lower to my 1267 buy level. As I am now long both the Euro and Silver I have now lowered my T/P level on this position to 1269. If this happens I will be back with anew buy range for my Platinum Members later today.
Silver Rolling Contract
Ahead of the ECB Meeting Silver traded lower to my 16.90 buy level. Subsequently Silver spiked above 17.00 and I used this level to exit my position. Subsequently I re-bought Silver at 16.80, and will now only add to this position on any further move lower to 16.50 with the same 16.20 stop. My T/P level on this position remains at 16.90.
Recent Comments