Sterling has been hammered (-1.7% to 1.2735) as the BBC exit poll points to a Hung Parliament (Tories are set to be 12 seats short of a majority, being on track to get 314 seats; Labour 266; SNP 34; 326 required for majority). While still early days and the result will need to be firmed up by the official results, the Bloomberg consensus in the event of a Hung Parliament suggests further downside risks to Sterling with a median expectation of 1.2350 in the event of a Hung Parliament. As for the other risk events on Super Thursday, these mainly came and went without too much fanfare: former FBI chief Comey did not provide a smoking gun in his testimony; and while the ECB did remove its easing bias and upgrade its risks to growth, it also downgraded its inflation forecasts. It is no surprise then that outside of Sterling, most market moves were muted with US equities flat, the US dollar up and bond yields diverging in the US and Europe.
To mark my 1350th 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 102 points yesterday and is now ahead by 204 points for June, having made 1071 points in May, 1376 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 1750 points.
First up on Super Thursday was Comey. His Testimony did not provide anything new to his pre-released statement yesterday. He did though leave just enough to continue the cacophony that has surrounded the President. “I don’t think it’s for me to say whether the conversation I had with the President was an effort to obstruct” and emphasised his distrust of the President “I was honestly concerned that he might lie about the nature of our meetings” and “I know I was fired because of something about the way I was conducting the Russia investigation was in some way putting pressure on him, in some way irritating him, and he decided to fire me because of that”.
It will be up to the lawyers and Congress to decide whether the testimony supports an impeachable offence — soundings from Republicans who control both the Senate and the House suggest not and that’s how the market interpreted it. As I go to print the House passed the repeal of Dodd Frank and the Bill goes to the Senate. The US dollar (DXY) rose 0.4% across the board while US Treasury yields rose 1.9bps to 2.19%.
Second on Super Thursday was the ECB. As somewhat expected, the ECB removed its easing bias and upgraded the risks on economic growth to “broadly balanced” from “negative”. Draghi later reinforced the positivity noting “we removed the bias because the tail risks have disappeared” and economic growth forecasts were upgraded by a tenth of a percent. Nevertheless, Draghi also noted that the “expansion has yet to translate into stronger inflation dynamics” and the ECB downgraded their headline inflation forecasts noting that underlying inflation has “yet to show convincing signs of a pick-up”. The Euro fell 0.4%, though this this largely reflects US dollar strength and Bund yields fell 1.3bps to 0.26%. Italy was the surprise in yesterday’s trading session with the biggest market moves. Italian 10-year sovereign bond yields fell 13bps to 2.15% as risks for an election this year abate with Italy’s big four political parties not agreeing on a new electoral law. That sees the likelihood of an Italian election pushed out until 2018.
As for other currency moves, most pairs were lower against US dollar strength except for the Kiwi which rose 0.3% with no clear catalyst for the outperformance. The Australian Dollar fell 0.3% and is currently at $0.7532. There have been some intraday moves with the Aussie 0.2% lower on yesterday’s lower than expected trade surplus caused by Cyclone Debbie flattening coal exports in April, reversed on stronger Chinese trade data, to be reversed yet again by negative sentiment from the UK exit polls.
Chinese trade data was much better than expected with imports surging imports surging 22.1% y/y, against expectations of 16.1%, and indicative of continued strength in domestic demand. As for Australia’s trade data (+$0.555bn against expectations of +$2.0bn), while the month’s weakness was due to Cyclone Debbie, the fall in coal exports could drag approximately up to 0.4% points off Q2 quarterly GDP growth – this assuming coal export volumes rebound fully in May and June. As such, GDP growth in Q2 is likely to remain subdued, before rebounding strongly in the second half of the year.
This morning on the Economic Front we have German Current Account and Labour Costs at 7.00 am. This is followed at 9.30 am by UK Industrial Production, Construction Output and the Trade Balance. I do not think this data will have much impact as it will all be about the outcome of the Election. Also at 9.30 am the Bank of England will outline its Inflation Forecasts for the next 12 months. Finally we have the UK NIESR GDP Estimate and US Wholesale Inventories at 1.00 pm and 3.00 pm respectively.
June S&P 500
It looks like the US market has stopped trading after what has been the quietest trading week for the S&P in many years. I am still flat the S&P and will the expected turbulence resulting from the UK Election I will now lower my buy level to 2410/2418 with a 2403 stop. I am still a buyer on dips until we get a sell extreme that lasts for more than a few days, plus you have to be impressed no matter what news is thrown at the US stock market it just shrugs it off and moves higher despite the severely overbought condition of the main Indexes.
EUR/USD
My Euro plan worked well as after the Euro hit my 1.1220 buy level following the ECB Rate Announcement the Euro rallied back above 1.1230 and I emailed my Platinum Members to exit here ahead of Dragi’s Press Conference and to re-buy on any dip lower to 1.1195 which was filled with a T/P level at 1.1230. Thankfully the Euro spiked above my T/P level and I am now flat. Today I will again look to buy the Euro on any dip lower to 1.1130/1.1170 with a 1.1095 stop. Despite the very high Daily Sentiment Index reading I do not want to be short the Euro at this time.
September Dollar Index
My Dollar plan also worked well with the Dollar trading lower to my 96.35 buy level before rallying ahead of the ECB Announcement and I used this rally to exit at 96.62 and I am still flat. Today I will again look to buy the Dollar on any dip lower to 96.30/96.70 with a 9595 stop. The Dollar is trying to bottom and given the low DSI it is only a matter of time before the Dollar rallies in my opinion.
June DAX
I am still flat the DAX which unfortunately missed my buy level before rallying 100 points ahead of the ECB Meeting. Today I will leave my buy range unchanged as going to press I do not know how the UK market will relate later when all the results are counted. Therefore my buy range will be from 12540/12600 with the same 12490 stop.
June FTSE
The FTSE mrket had closed by the time the BBC Exit poll was released and I am still flat the market. I still believe that as long as the FTSE can hold 7330 then the market is still a buy on dips as the weaker Sterling should also help. Today I have now lowered my buy range to 7320/7360 with a 7290 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
Yet again the Dow missed my buy level before rallying and I am still flat. Given the uncertainty surrounding the outcome of the UK Election I will now lower my buy level slightly to 21010/21080 with a wider 20960 stop.
September BUND
Unfortunately the Bund just missed my 165.20 sell level with a 165.18 high print before selling off into the close and I am still flat. Today given the uncertainty of the UK Election result I will now raise my sell level to 165.45/165.75 with a 166.05 stop. This sell range is strong resistance and I would expect the Bund to having difficulty in initially breaking this range.
Gold Rolling Contract
Gold got hit hard on the back of Dragi trading to a low of 1271 before bouncing on the BBC poll. The sell-off saw Gold hit my 1276 buy level before bouncing to my revised 1279 T/P level and I am now flat. Today is vital for Gold as it must hold the 1265/1270 support level this evening in New York or we could quickly see an acceleration lower. I am going to give the market the benefit of doubt and today I will again look to buy Gold on any dip lower to 1260/1266 with a 1254 tight stop.
Silver Rolling Contract
Thankfully we exited any long Silver position earlier in the week at 17.69 and have been flat since as Silver followed Gold lower yesterday. Today I will leave my buy level unchanged from 16.90/17.20 with the same 16.60 stop.
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