Weaker than expected US Consumer Prices with core (ex food and energy) CPI up just 0.1% versus 0.2% expected, did damage to the nascent US dollar recovery on Friday and pulled US short end yields lower (2 and 5 years both down by about 3bps). Soft CPI was seen as another ‘goldilocks’ economic release helped the S&P and Dow post minor gains (~0.1%) while the NASDAQ rose by a more impressive 0.64%. The VIX gave back only a little of the mid-week North Korea related spike, finishing at 15.51 from 16.04, so still 5 points or 50% up on the week (note though this is still well below the long term average of nearer 20). The CPI impact might have been bigger still had the year-on-year change in core CPI not held at 1.7% (as expected) thanks to rounding rather than fall to 1.6% and too the fact that the downside surprise was fully accounted for by the ‘lodging away from home’ component (i.e. hotel rates) and which is sharply at odds with the ongoing uptrend in hotel occupancy rates.
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 32 points on Friday and is now ahead by 460 points for August, having made 1096 points in July, 1023 in June, 1071 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 1700 points.
For those of us in FX, the more interesting feature of Friday’s news flow was not CPI but the latest CFTC/IMM futures positioning data. Earlier Friday it was noted on the NZD that speculative long IMM positioning has not reached the sorts of local extremes that it has in recent weeks without historically being followed by a significant correction lower in the kiwi. Friday’s IMM data shows aggregate US Dollar short positioning versus G10 currencies rising by 60% in the week to last Tuesday, to its most extreme since 22 January 2013. Back then, between late January and mid-March 2013, the DXY rallied by over 5%. EUR/USD positioning is now at its most extreme since 3 May 2011 and before that 2 Oct 2007. During May 2011, EUR/USD dropped 10 big figures to 1.40. EUR buyers and USD sellers beware!
In FX, across-the-board gains versus the USD for G10 currencies ranged from 0.01% for the JPY to 0.53% for CAD. EUR/USD rose 0.42% to 11.1821; USD/JPY fell to Y109.19 from Y109.20; AUD/USD +0.24% to 0.7894; NZD/USD +0.49% to 0.7311; USD/CAD 1.2677 from 1.2744; GBP/USD +0.29% to 1.3014. The narrow DXY index lost 0.36% to 93.069 (92.55 has been the YTD low so far); the broader BBDXY -0.34%. The Asia-emerging markets ADXY index was little changed, North Korea concerns seemingly preventing a rally here into the weekend.
In rates US Bond Yields fell straight after CPI, rallied then fell away during the NY afternoon. 2s ended the day -3.2bps at 1.296% (-4.5bps on the week) and 10s -0.8bps to 2.19% (-3.2bps w/w). Money market pricing for a December Fed rate hike has come in to 25% from 38% last Thursday and you have to look all the way to the end of 2018 before even one hike from here is fully discounted.
In commodities US Dollar slippage helped gold gain $4 to $1287.7 (up $20 on the week). WTI and Brent both added 20 cents to $48.82 and $52.10 respectively. Friday’s Baker Hughes US active oil rig count dropped rose by 3 to 768. Iron ore gave back $1.50 to $75.19 but was still $2.26 up on the week.
On Friday, the Fed’s Kaplan said that he wanted to “see continued evidence – or more evidence – that we’re making progress on reaching our inflation objective,” adding that “I’m willing to be patient”, while the Fed’s Kashkari delivered his usual dovish missive.
Today on the Economic Front the only data of note is Chinese Industrial Production and Retail Sales at 4.00 am. Finally we have Euro-Zone Industrial Production at 10.00 am. We have no US Data due today.
September S&P 500
Both my buy and sell levels in the S&P just missed on what turned out to be a reasonably volatile trading session. So far the S&P is holding its ‘’Open Gap’’ from 2425 as the McClellan Oscillator improved to close at a still large -209 negative reading from -247 on Thursday. It is worth noting that with the sell-off in the S&P on Wednesday and Thursday that 200 of the 500 S&P stocks have fallen over 10%. This is an incredible statistic when we only had a 60 Handle S&P sell-off. Today I will now raise my sell level in the S&P to 2454/2460 with a 2465 stop. I will also raise my buy level slightly to 2429/2435 with a 2423 stop. If I am taken long I and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2409/2415 with a 2402 wider stop.
EUR/USD
My Euro plan worked well with the Euro spiking higher to 1.1835 on the CPI release which put me short at my 1.1825 sell level. Subsequently the Euro traded back below 1.1790 and this sell-off enabled me to cover this short position at my revised 1.1805 T/P level and I am now flat. With IMM data showing Euro long positions at the highest level since 3 May 2011 and 2 October 2007 the market is ripe for a large movement lower in the Euro. With this in mind I will now look to sell the Euro on any rally higher to 1.1860/1.1910 with a 1.1940 stop. The Euro has strong support from 1.1670/1.1710 and I will continue to be a buyer in this area with a 1.1635 stop.
September Dollar Index
I came into Friday long the Dollar at 93.40 and looking to add to this position on any move lower to 93.00 which subsequently got filled. I am now long at an average rate of 93.20 and will now lower my stop on this position to 92.60. I will also lower my T/P level to 93.45.
September DAX
The DAX tried to break lower initially after the European Markets opened on Friday but fund good support at the 200 Day Moving Average at 11900/11920. I am still flat and today I will now move my buy level higher to 11870/11920 with an 11820 stop. Given how oversold the DAX is trading I do not want to be short the market at this time.
September FTSE
I am still flat the FTSE which again struggled to rally on Friday. The market has strong support at the June/July lows at 7241 and today I will now lower my buy level slightly to 7225/7255 with a 7195 tight stop.
Dow Rolling Contract
Unfortunately the Dow just missed my 21770 buy level with a 21813 low print before rallying as expected given how oversold the McClellan Oscillator is trading. Today I will move my buy level slightly higher to 21770/21830 with a 21720 stop. Even though I am extremely bearish the Dow in the long term I do not want to be short the market at this time.
September BUND
Bund bulls remain in control despite the severely overbought nature of the market. The Bund has strong resistance at the 164.60/165.00 area and today I will be a seller in this area with a 165.30 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1263/1270 with the same 1256 stop.
Silver Rolling Contract
My Silver plan worked well with the market trading lower to my 17.00 buy level with a 16.90 stop. As I wanted to bank some points for Friday’s trading session I covered this long position at my revised 17.12 T/P level and I am still flat. I am extremely bullish of Silver long term but the price action in Silver continues to underperform Gold at this time which is a concern. Today my only interest in buying Silver is on a dip lower to 16.60/16.90 with a 16.35 tight stop.
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