After taking a breather, the US Dollar has regained its mojo partly driven by concerns over other currencies along with a supportive domestic backdrop. Sterling has been the big G10 underperformer amid rising political concerns, a theme which has also weighed on EUR and soft data has been the driver for AUD and CAD underperformance. Meanwhile US equities have continued to climb higher (eighth consecutive day of gains), US data releases again yielded positive surprises and Fed speakers reinforced the message that further rate hikes should be expected.
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 32 points yesterday and is now ahead by 134 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.
So the USD is stronger across the board with DXY and BBDXY up 0.54% and 0.57% respectively. Sterling is the biggest loser, down 1.01% with the declines over the past two weeks effectively reversing all the gains from mid-September triggered after the Bank of England signalled its bias to lift Interest Rates before year end. Cable has come under pressure amid dwindling support for PM May with the prospect of a new leadership contest further delaying Brexit negotiations. The bad news for the UK economy does not stop there with the FT running a story of “ a bloodbath” in public finances ahead of the Budget next month and the Royal Mail union has announced its intentions to strike later this month amid pension, pay and job disputes. Further GBP weakness looks like a safe bet at the moment with Cable trading at 1.3075 this morning.
After yesterday’s softer than expected Retail Sales the Australian Dollar fell from 0.7863 to 0.7830 and traded around that level in the early part of yesterday’s trading session. Then as the USD regained its mojo, the AUD fell below the figure and now trades at 0.7760. Yesterday’s Retail Sales report revealed broad weakness across store sectors and states, though food was a standout (cafes, restaurants and takeaways -1.3% m/m. But most economists think there is little reason to believe this should continue given the rising population and job creation. The data may have also been affected by the sample, so in this regard some payback should be expected next month. Meanwhile the AUD has major support at 0.7690. A break through that level would open the door for the AUD to trade towards 0.75c.
The Canadian Dollar was also an underperformer overnight (-0.76%), currently trading at 1.2592 after Canada’s Trade Deficit unexpectedly widened in August. EUR has not been immune to the strength of the USD with Catalonia’s intentions of independence still dominating the EU headlines. EUR is down 0.60% since I posted yesterday morning and currently trades at 1.1692. An earlier report suggested that some sort of brokered deal might be done between Catalan and Spain’s leaders that avoids the economic calamity of some illegally declared secession of the region. But Catalan separatists have again reiterated their plan for a debate in Parliament on Monday, defying orders from Spain’s government.
The USD was also aided by a rise in US Treasury Yields amid hawkish comments from Fed speakers and better that expected Trade and Jobless Claims data. Fed Williams (non-voter) said that he is optimistic on inflation rising to 2% and is confident that “rates will need to rise to their new normal levels”. Echoing Yellen’s view Williams also added that he does not need to see an actual move up in inflation to justify another rate increase. Meanwhile Fed Harker (voter) said that he had “pencilled in” a move in December and three hikes next year, in line with the median FOMC dots.
Fed Powell, a contender for the Fed Chair, was also speaking last night and he yet again mentioned his deregulation bias noting that “There is certainly a role for regulation, but regulation should always take into account the impact that it has on markets — a balance that must be constantly weighed. More regulation is not the best answer to every problem. There is also a role for a body such as the TMPG to address market problems”. On paper Powell appears to tick most of Trump’s boxes, continuity, dovish and pro deregulation and the fact that he does not have a Phd is offset by his Fed experience and good track record as a governor.
This morning on the Economic Front we already had the release of German Factory Orders which came in very strong at 3.6% versus 0.7% expected. We have UK Halifax House prices and Unit Labour Costs at 8.30 am and 9.30 am respectively and this is followed at 1.30 pm by the US Non-Farm Payrolls. Looking at the Bloomberg distribution of economist estimates for NFP, the uncertainty surrounding the impact from recent hurricanes is pretty evident by distribution of forecasts. The median estimate is at 80k, but the lowest estimate is at -40k while the highest is at 260k. Ignoring the tails, the +/-1 standard deviation has a range of 36k to 126k. So still a fairly wide range. All that said, ISM readings this week as well as the ADP report point to modest activity impact from hurricanes. This would suggest that the risk for today is that we get a stronger print than the 80k expected by the median estimate (Non-Farm Payrolls readings have averaged 178k so far this year). The Unemployment rate is expected to remain unchanged at 4.4% and average hourly earnings are expected to rise 0.3% mom up from 0.1% previously while the yoy reading is seen unchanged at 2.5%. Finally we have Wholesale Inventories at 3.00 pm and Consumer Credit at 8.00 pm.
Meanwhile in what should to be a more volatile trading session, the Fed’s Bostic, Dudley and Kaplan are speaking this afternoon.
December S&P 500
The melt-up phase for the S&P continues with no let up as every short position gets slammed. The CNN Greed & Fear Index closed last night at 95 which is the highest reading that I have ever seen for this Index. Normally above 80 is extreme greed and leads to at least a partial sell-off for the US Markets but 95 is just so extreme. However trying to short this market is proving extremely difficult and maybe the S&P is going to keep going like Japan did in late 1988/early 1989 and rally to its third Standard Deviation at 2792 or mad as it seem to its 4th STD at 3344. Yet in the midst of this huge rally to yet another new all-time high for the three main US Indices, the McClellan Oscillator fell 30 points yesterday to close at +62. I have never seen so many divergences in the US markets before. However until we get a sell extreme that lasts for at least a week it is very difficult to be short. Today the Daily S&P is trading way above its Daily Bollinger Band and at the top of the Williams Index but markets do not care as one short position after another gets stopped out. Meanwhile the 14 Day RSI is at a hugely overbought 81. Yesterday the S&P traded to my initial sell level at 2543 and again at 2550 and I am now short at an average rate of 2546.50. I am not comfortable in being short ahead of the NFP data at 1.30 pm and may look to cover this position ahead of this release. For the moment I will have a stop at 2557 and if I am stopped out of this position I will be a more aggressive seller from 2559/2565 with a 2571 stop. There is no doubt the 2505 level is going to be major support on any sell-off over the coming days and I will be an aggressive buyer from 2506/2514 with a 2500 stop. For today I will raise my buy level to 2528/2534 with a 2523 stop.
EUR/USD
The Euro is under pressure this morning and I am still flat. There is no doubt the political landscape is changing in Europe and this is not helping the single currency at this time. Ahead of the NFP data I will now lower my buy level 1.1580/1.1625 with a 1.1545 stop. I will also lower my sell level to 1.1755/1.1795 with a 1.1835 stop.
December Dollar Index
I am still flat the Dollar which again just missed my buy level. Today I will now raise my buy level to 93.10/93.45 with a 92.70 stop. Despite the Dollar trading overbought I do not want to be short the market at this time.
December DAX
Given the weakness in the Euro I am surprised that the DAX is not trading higher despite how severely overbought this market is trading. I am not going to chase this market higher and today I will leave my buy level unchanged from 12820/12880 with a 12775 stop. I will also be a small seller on any further rally to 13060/13110 with a 13145 tight stop.
December FTSE
As I am already short both the Dow and S&P, I emailed my Platinum Members to cancel my sell level in the FTSE. The FTSE in the past while has traded higher to yesterday’s sell level at 7480 and if you are short I would go flat ahead of the NFP data. With the political situation worsening coupled with Sterling selling off aggressively it is difficult to be short the FTSE as the market just loves a weaker currency. Today I will now raise my buy level to 7395/7430 with a 7360 stop. Given the renewed weakness in Sterling I no longer want to be short this market.
Dow Rolling Contract
As I was already short the S&P I waited to sell the Dow which I did at 22740 and again at 22790 and I am now short at an average rate of 22765. The Dow is not as overbought as the S&P at this time and I will now look to exit my short position at or near a breakeven ahead of the NFP release at 1.30 pm. I do not mind holding one short position into NFP but not two positions. I know most members will either trade the S&P or Dow but rarely both at the same time. After I am flat and if the Dow rallies further I will be a more aggressive seller from 22860/22950 with a 23020 stop. Today I will be a buyer of the Dow on any dip lower to 22570/22630 with a 22520 stop. I will also be an aggressive buyer on any further dip lower over the coming days to 22360/22440 with a 22295 stop.
December BUND
My Bund plan worked well with the Bund trading higher to my 161.60 sell level. As I wanted to bank some points for yesterday I covered this position too early at 161.48 and I am now flat. If you are still short I would cover your position here ahead of the NFP at 1.30 pm. Today I will still be a buyer on any dip lower to 160.30/160.65 with a 159.95 stop. My sell level will be from 161.95/162.25 with a 162.50 tight stop.
Gold Rolling Contract
When the markets reopened last night Gold traded lower to my 1266 buy level. As I want to be flat ahead of 1.30 pm I covered this position earlier this morning at 1268 and I am now flat. Today I will again look to buy Gold on any dip lower to 1250/1257 with a 1243 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer into my long term target rate at 1225/1238 with a 1218 stop.
Silver Rolling Contract
I am still flat Silver having exited my latest long position at 16.75 on Wednesday. Today I will continue to be a buyer on any dip lower to 16.10/16.40 with the same 15.90 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 15.40/15.85 with a 14.95 stop.
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