Unlike Wednesday Night and Thursday (post FOMC, RBNZ), Friday was not a big day for markets and following the BoJ’s earlier ‘no change’. End of month rebalancing flows appeared to dominate price action, meaning a slightly softer US Dollar (DXY -0.35%, BBDXY -0.42%) and following strong US equity gains over the month that will have left some asset managers who passively hedge currency risk, under hedged on US exposures.
For anybody following my new Platinum Service it made 31 points on what was a very quiet trading session to close up 1600 points for October. The previous four months saw gains of 2833, 2195, 1810 and 3045 points respectively.
US equities were moderately softer after what has been a big up-month following the August-September swoon. After a small up-day for Eurozone equities (Eurostoxx 50 +0.14%, Dax +0.46%) the S&P500 lost 0.48% (putting the October change at +6.6%), The Dow -0.52% (+7.2% on the month) and the NASDAQ -0.4% (+7.3% m/m). VIX gained 0.46 to 15.07, a rise of 0.61 on the week.
CFTC data for the week ended Tuesday 27 October is notable for a sharp rebuild in EUR speculative shorts following the December ECB easing message delivered by President Draghi during this reporting week. Net shorts here extended to -105.9k from -62.6k, taking the overall USD speculative USD long vs. G10 currencies up to 183.9k from 119.8k. Net shorts in AUD were little changed, -36.4k from -38.4k, so continuing to highlight potential for a decent bounce if the RBA stands pat on Tuesday.
San Francisco Fed President John Williams gave an interview to the Associated Press in which he said that language in the (FOMC) statement was meant to put financial markets on notice that December is very much a live meeting. He said ‘there was a lot of commentary I heard (after the October meeting) that the Fed is going to be on hold until next year’. But he said the Fed has yet to decide when to raise rates and that he wants to study more economic data in coming weeks before deciding whether the economy is strong enough for the Fed to raise rates. As I go to publish the China Manufacturing PMI has just been released printing a still in contraction 48.3 but better than the 47.6 expected.
ECB President Draghi attempted to inject some mystery into whether the ECB will ease policy further in December, telling an Italian newspaper that it is still an “open question” whether further stimulus will be necessary. The interview, published on Saturday, is likely responsible for EUR’s 30pt pop at the open last night. Understandably, after his theatrics in Malta, investors are well past whether stimulus will delivered, and more concerned with how much, and in what form.
This morning on the economic front we have German and Euro-Zone Markit Manufacturing PMI at 8.55 am and 9.00 am respectively. This is followed at 9.30 am by UK Manufacturing PMI. At 2.45 pm we have US Manufacturing PMI. Finally at 3.00 pm we have US ISM Manufacturing and Construction Spending. Later at 5.00 pm the San Francisco President Williams will give the opening remarks at a conference in San Francisco.
December S&P 500
The S&P plan worked well on Friday as shortly after the US Markets opened the market traded lower to my 2079 buy level before having a nice rally to 2086 which enabled me to cover this position too early at 2082.1 as outlined earlier to my Platinum Members as I did not like the way the market was trading and I am now flat. The S&P opened lower last night on report that the US Property Market was in the ninth innings and the fact that some serious Commercial Players have exited the market over the past few months. Today I will only look to buy the market on any further dip lower to 2059/2064 with a 2054 stop. If I am taken long and subsequently stopped out of any long position I will be a more aggressive buyer in front of 2048 with a 2042 stop. Given the fact that we are at the start of a new month I do not want to go short the S&P today.
EUR/USD
The Euro traded all over the map on Friday having hit a high at 1.1070 before getting hit into the close, only to open higher on the comments from ECB Dragi on Saturday that they may not do anymore QE in December. Dragi is back to his old ways of trying to talk the Euro lower without spending any money. I still believe it is touch and go whether the Fed will hike rates next month despite what was released in the FOMC Statement last week and this Friday’s NFP will now take on extra scrutiny in this regard, especially in relation to revisions and the key Average Earnings Component. Today I will raise my buy level to 1.0950/1.0990 with a 1.0920 stop. I still do not want to be short the Euro at this time.
December Dollar Index
Today I will lower my sell level to 97.50/97.80 with a 98.10 as so far the 98.00/98.30 key resistance level for the Dollar is holding any move higher.
December DAX
Unfortunately the DAX just missed my 10735 buy level by 12 points on Friday before going on to have a 150 point rally and I am still flat. Today I will lower my buy level slightly to 10660/10720 with a 10620 stop. I still do not want to be short the DAX at this time.
December FTSE
The FTSE despite having its best month in two years continues to trade heavier than the other major Indices. The FTSE closed very weak on Friday and that trend has continued early this morning. The next good support level for the market is at 6250 and today I will be a small buyer on any further dip lower to 6225/6255 with a 6195 stop. Given how much the market has fallen since the FOMC on Wednesday I do not want to be short the market today.
Dow Rolling Contract
Very frustratingly the Dow just missed my 17870 sell level on Friday with a 17850 high before going on to have a 250 point sell-off and I am still flat. Today I will lower my sell level to 17720/17770 with a 17820 stop. Given the strong US Dollar I still do not want to be long the Dow at this time especially after its 7% rally in October.
December BUND
I am still flat the BUND and today I will raise my buy level to 156.50/156.90 with a 156.25 stop. I still do not want to be short the BUND at this time.
Gold Rolling Contract
Thankfully we have stayed away from the buy side of the ledger for Gold since we exited last Wednesday at 1157 especially with Gold closing below the key support at 1150 for the second consecutive day on Friday. Today I will be a small seller on any rally higher to 1149/1155 with a tight 1159 stop. I still do not want to be long Gold at this time, preferring instead to be long Silver.
Silver Rolling Contract
No change as I am still long Silver from last week at 15.60 with the same 15.20 stop. If I am stopped out of this position I will be a more aggressive buyer in front of 14.90 with a 14.50 stop.
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