Yesterday we had the ECB Meeting which resulted in another move higher in the Euro (+0.9% to 1.2023) and this rally has continued overnight with the Euro now trading at new highs for the year at 1.2080, while German Bund yields closed lower (-4.0bps to 0.31%). Those moves came despite an explicit nod by the ECB that they would likely announce a taper of the Asset Purchase Programme at the upcoming October meeting and some concern over the recent strength in the Euro. It seems the lack of detail and indecision over tapering dominated, while moves in Bunds helped drive down US Treasury yields to their lowest since November (10-years down 6.6bps to 2.04%). Not helping the Dollar was the downgrade to Japanese GDP earlier this morning from the original reading of 4% to just 2.5%.
To mark my 1400th 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 email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 60 points yesterday and is now ahead by 208 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 my New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
First up the ECB meeting. As largely foreshadowed by anonymous sources last week, the ECB did not announce a tapering of its €60bn a month Asset Purchase Programme that runs until December or beyond if necessary. Instead Draghi noted that the ECB had only held “very preliminary” discussions with an announcement not likely until the 26 October meeting: “we’ll announce when we are ready…we think we have much of what we need in October”. While Draghi noted that many factors were discussed, the lack of explicit detail and perhaps indecision over the timing and scale of tapering has supported a rally in Bonds.
The ECB also noted some concern over the currency, noting that “recent volatility in the exchange rate represents a source of uncertainty” with implications for the medium-term outlook for price stability. The recent Euro appreciation also saw the staff’s projections of inflation revised down by 0.1% point with 2018 at 1.2% and 2019 at 1.5%. There was some hint of an override in the impact of the higher Euro, with it being offset by an improved growth outlook – and the 2017 GDP growth outlook was indeed revised up to 2.2% from 1.9%. Although some fanfare was made of the ECB using a higher Euro assumption of 1.18, it was merely a technical methodology that uses the two week average of the exchange rate to the 14 August.
In the FX space the Euro surged on the news, initially up some 1.1% before settling up 0.9% at 1.2023. Other European currencies were also dragged higher with the Norwegian Krone +0.9% and Swedish Krona +0.8%. The US Dollar in contrast was weaker across the board, with the DXY down 0.6% and at 91.58 is now the lowest we have seen since January 2015. The Japanese Yen remains bid (+0.7%) with likely safe haven demand alongside concerns around North Korea On the back of the weaker GDP growth USD/JPY got hit and is now trading at 107.80 from 108.45 earlier. The Aussie (+0.6%) and the Kiwi (+0.4%) were mainly bystanders.
Bond yields were led lower by moves in German Bunds. US Treasury yields fell 6.6bps to 2.04%. Yesterday’s resignation of Fed vice-chair Fischer and the pushing out of the debt ceiling showdown to mid-December are also likely weighing – reducing the chances of a December rate hike. Nevertheless one Fed official remains committed with non-voter Mester noting: “In my view, if economic conditions evolve as anticipated, I believe further removal of accommodation via gradual increases in the Fed Funds rate will be needed” and that the Fed shouldn’t wait until inflation hits 2% before hiking again.
There was little in the way of significant data. Although US Jobless Claims surged to 298k (245k expected), the 62k increase was likely entirely due to Hurrcaine Harvey with Jobless Claims up 52k in Texas. A further rise is likely in coming weeks. As I go to print Hurricane Irma is forecast to hit Florida on Sunday. Insurance stocks have been sold ahead of the event with the S&P500 Insurance sub-index down 1.9% against an unchanged broader market (S&P500 0.0%; Euro Stoxx 50 +0.4%).
Finally, the Swedish Riksbank also met yesterday and while there was no change to either rates or their own asset purchase programme, the growth outlook was revised higher. Nevertheless, the Riksbank Governor noted it would be risky to move ahead of other central banks so it seems we are basically waiting on the ECB to move before we see a change in policy in Sweden. According to current forecasts the Riksbank expects to raise rates in the middle of 2018 (unchanged from last meeting).
This morning on the Economic Front we already had the release of the German Trade Balance which came in at EUR 19.5 bln versus EUR 21.0 expected. At 9.30 am we have UK Industrial Production and Trade Balance. Also at this time the Bank of England will give their Inflation forecasts for the next 12 months. This is followed at 1.00 pm by the UK NIESR GDP Estimate. Finally we have US Wholesale Inventories and Consumer Credit at 3.00 pm and 8.00 pm respectively.
September S&P 500
Despite the huge volatility in currencies yesterday the S&P traded in a narrow range as the market again just missed my initial 2470 sell level with a 2469 high print before having a small sell-off into the close. No one knows what the impact of Hurricane Irma but given the scale of this storm. If it moves even slightly west before making land on Sunday then the scale of devastation will be catastrophic with the costs running into the Billions of Dollars. Today I will leave my buy level unchanged from 2443/2449 with the same 2438 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2421/2428 with a 2416 stop. The S&P still has a small ‘’Open Gap’’ at 2473 and today I will leave my sell level unchanged from 2470/2476 with the same 2481 stop which is just below the 2488.50 all-time high.
EUR/USD
My Euro plan worked well with the Euro trading higher on Dragi to my 1.2060 sell level before falling 80 points and this sell-off enabled me to cover this position at my 1.2030 T/P level and I am now flat. Earlier this morning the Euro made a new high for the year at 1.2092 before easing slightly. A weekly close above 1.2070 in New York this evening will add to the bullish mood despite the severely overbought condition of the single currency. Today I will now move my buy level higher to 1.1925/1.1970 with a 1.1885 stop. The Euro has resistance at 1.2100 and strong resistance at 1.2160/1.2190. Today my only interest in selling the Euro is on a rally higher to 1.2120/1.2160 with a 1.2190 tight stop.
December Dollar Index
As soon as Dragi spoke at his press conference the Dollar volatility increased substantially with the market initially trading lower to 91.34 which put me long at 91.45 before bouncing a few minutes later to a 91.78 rebound high. I used this rally to exit my long position at 91.60 and subsequently I emailed my Platinum Members to buy the Dollar again at 91.35 with a 91.50 T/P level and both orders were filled and I am now flat. This morning the Dollar is trading below 91.00 which is a big break of the key 91.20/91.50 previous support level. The Dollar is extremely oversold and it will be interesting to see the IMM data for the Dollar positions after the close this evening plus the Daily Sentiment Reading also. Given how oversold the Dollar is trading I will now look to buy the market on any dip lower to 90.40/90.75 with a 90.10 stop.
September DAX
Given the strength of the Euro, the DAX is holding in well and I am still flat. Today I will leave my buy level unchanged from 12165/12210 with a 12120 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer in front of 12090 with a 12040 stop.
September FTSE
No change as I am still a buyer on any dip lower to 7290/7315 with a 7260 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
My Dow plan worked well with the market trading higher to my 21830 sell level with a 21848 high print before selling off. Unfortunately as I had an open position in both the Dollar and Euro at the same time I moved my sell level higher in the Dow as I had enough risk on board at the time and I am still flat. Hindsight is a great thing. There is now doubt the Dow is having huge trouble in breaking the 21800/21900 resistance level which is surprising given how weak the Dollar is trading. Today I will leave my buy level unchanged from 21600/21660 with a 21550 tight stop. I will also look to sell the Dow on any rally higher to 21820/21880 with a 21930 stop.
December BUND
The huge 260 point discount from the September Contract the December Contract was a warning not to be short the Bund and this proved to be correct with yesterday’s 100 points rally. To think the Bund is trading with a Yield of 30 basis points given the alleged strength of the German economy is incredible. Anyway thankfully we had no sell levels yesterday and are still flat. The Bund has strong resistance from 163.70/164.00 and I will be a seller in this area with a 164.25 tight stop. My only interest in buying the Bund is on an unexpected dip lower to 162.20/162.55 with a 161.95 stop.
Gold Rolling Contract
The weakness in the US Dollar is finally seeing a decent move higher in Gold. I am still flat and given how overbought the market is I am reluctant to chase this market higher especially as Silver continues to underperform Gold in a big way. However the break of 1344 is bullish and today I will now move my buy level higher to 1332/1340 with a 1326 stop.
Silver Rolling Contract
I have been concerned by the price action in Silver for much of the past few weeks. Incredibly Silver has traded sideways for most of this time before finally rallying this morning. I am going to respect this break above 18 and I will now move my buy level higher to 17.70/18.05 with a 17.40 stop.
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