AUD/USD closed (just) below 0.77 for the third time this week (and year) on Friday, despite the weak US dollar backdrop that saw US Dollar Index off almost half a percent on the day and over 0.8% on the week. Falling metals prices, with The LMEX Index now 8% off its early February peak and iron ore over 10% off its beginning of March highs, alongside the Thursday/Friday stock market falls and related jump in the VIX volatility measure, account for the slippage and are suggestive of more weakness to come, at least on the crosses even if a weak USD holds up the AUD/USD rate. Meanwhile the FT’s Alan Beattie tweeted on Thursday night: ‘’I quite like this model of punitive trade policy whereby you announce tariffs and then exempt everyone who actually exports to you. Keeps trade reporters in work while not actually doing any harm’’.
To mark my 1550th 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 in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 174 points yesterday and is now ahead by 1432 points for March, having made 2256 points in February, 879 points in January, 946 points in December, and 823 points in November Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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On Friday, the EU, South Korea, Brazil and Argentina joined Canada, Mexico and Australia in winning at least temporary exemptions from the steel and aluminium tariffs that have now gone into effect. Together, this means that some two thirds of the $33bn worth of steel imported by the United States each year is now exempt. Russia, Turkey, Japan (so far) China and Taiwan are the main steel exporters not exempt, of which Russia is the largest, accounting for some 8% of US imports last year: And yesterday, U.S. Treasury Secretary Steven Mnuchin said he’s optimistic that the U.S. can reach an agreement with China that will forestall the need to impose the tariffs that President Donald Trump has ordered on a least $50 billion of goods from that country. ‘’We’re having very productive conversations with them,’’ Mnuchin said on Fox News when discussing talks with China. ‘’ I am cautiously hopeful we reach an agreement’’.
The wag who suggested that ‘’trade wars’’ better resembles a pillow fight has a point, though this did not stop US stocks falling out of bed of Friday to suffer their worse weekly loss since 2016 and brought Indices back into the ‘’correction’’ territory that characterised the first half of February. The VIX added another point and a half to Thursday’s spike, closing at 24.87, almost 60% up on a week ago. Clearly a fair amount of damage was done on Thursday and late Friday after the US went ahead and announced plans for tariffs on $60bn worth of Chinese imports – subject to consultation with US firms – and China announced retaliatory actions to the steel/aluminium tariffs against some $3bn of US exports to China.
Whether this is the sole cause of latest risk market ructions is debatable. Some commentators are suggesting that confidence in continuing strong synchronised global growth may be slipping and beyond fears about trade wars, citing for example the 3rd consecutive monthly fall in Euro-Zone PMI readings reported last Thursday and the fall into negative terrain in Citi’s Economic Surprises Index for major economies, having been at near-record positive readings at the turn of the year.
I should also note rising geopolitical tension following the appointment of John Bolton as Trump’s new security adviser. This has heightened concerns that Trump will formally repudiate the 2015 nuclear deal with Iran that Bolton is on record as saying this was a mistake. It also raises fears that talks between Trump and Kim Jong Un will fail given Bolton’s hard line on North Korea. The resignation of John Dowd, the top lawyer representing Trump in connection with the Russia investigation, is also being cited behind the renewed risk aversion.
In FX, more evidence if it were needed that the US Dollar no longer exhibits safe-haven characteristics, at least not when USD political machinations are at the epicentre of market angst. I might also note that Friday’s $1.3tn omnibus spending bill signed into law on Friday through the US President’s gritted teeth means that the twin deficits blow-out in the coming few years will now be even bigger than estimated in December and February following first the tax then February’s two year spending bill.
On the day, it was the Japanese Yen that once again displayed its pre-eminent safe-haven characteristics, though on the week it was the Canadian Dollar and Sterling that topped the G10 leader board, following positive NAFTA-related news and EU agreement on a Brexit transition deal respectively. Hardening expectations of a next Bank Of England rate rise in May have also helped Sterling this week and which received some encouragement from a speech Friday by MPC ‘’dove’’ Gertjan Vlieghe, who cited the latest unemployment data as evidence of a tight labour market that would push up wags and inflation, requiring higher rates. The CAD also benefited Friday from stronger than expected CPI data (up to 2.1% on headline and core measures) and which pushed the market implied probability of a next Bank of Canada rate rise in May from 67% to 74%.
US Treasury yields were lower across the curve on Friday amid mid bull-steepening though on the week there is little to choose between the falls in yields from two to ten years (3-4bps)
In commodities, we are now seeing a real contrast between oil and gold – up on geopolitics (Iran) and safe-haven considerations (gold) while industrial metals are falling. Oil prices added another $1.5 on Friday to see Brent crude back above $70 (70.45) for the first time since last January (the year to date high is $70.53 on a closing basis)
Two regional Federal Reserve bank presidents on Friday said they favour raising interest rates twice more this year following a hike this week, but were open to shifting their views if the outlook warranted a different policy approach. Atlanta Fed President Raphael Bostic, who votes this year on monetary policy, told reporters ‘’To the extent growth accelerates more than our models predict, then four could be prudent. If it comes in less than our models predict, then two could be prudent’’. His comments were echoed by Dallas Fed chief Robert Kaplan, who told reporters in Austin, Texas, that ‘’my base case continues to be three for the year, and having said that I am also open minded and we’ll see how the year unfolds. It’s certainly possible that that view will get amended.”
This morning on the Economic Front we have UK Finance Loans for Housing at 9.30 am and this is followed at 1.30 pm by the Chicago Fed National Activity Index. Finally at 3.30 pm we have the Dallas Fed Manufacturing Activity Index.
Meanwhile the Fed’s Dudley and Mester are speaking later today at 5.30 pm and 8.30 pm respectively.
June S&P 500
Friday was another day of extreme volatility with the S&P rallying hard for most of the day to top at a high of 2658.50 which was just below my 2670 sell level before incredibly falling over 70 Handles in the last two hours of trading to a low at 2585 before rallying 40 Handles overnight to currently trade at 2624. When you get this incredible volatility you have to be nimble and take your gains or losses quickly before they do some real damage. Friday’s late sell-off saw the S&P trade lower to my average buy level at 2602. Last night on the re-open I covered my long position at my revised 2604 T/P level as emailed late to my Platinum Members and I am now flat. When you see the S&P trading 20 Handles above my exit level this morning it may look silly to have exited last night but Friday was an extremely profitable trading session and I did not want to risk my hard earned gains. The S&P has strong resistance from 2645/2660 and today I will lower my sell level to this area with a 2667 stop. A break and close over 2660 is bullish while building value below 2520 is the first signal of a new breakout that tells us to exit any short term long positions. Today I will be a buyer on any dip lower to 2580/2595 with a 2572 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2525/2540 with a 2514 stop.
EUR/USD
The Euro traded higher to my 1.2390 sell level in the last few minutes. As I am not comfortable in being short I have now exited this position here at 1.2282 and I am now flat. As long as the Euro can hold the key 1.2255 support level there is a fair chance that we are going to finally spike to my 1.25/1.27 resistance area before we see a more meaningful correction. Today I will now raise my buy level to 1.2280/1.2325 with a 1.2235 stop. I no longer want to be short the Euro at this time.
June Dollar Index
I am still flat the Dollar and today I will now lower my buy level to 88.20/88.60 with a 87.90 stop.
June DAX
My DAX plan worked well on Friday with the market trading lower to my 11820 buy level before rallying to my revised 11840 T/P level and I am now flat. The DAX continues to hold the key 11765 support level which is the Contract low from early February. Today I will again look to buy the market on any dip lower to 11730/11800 with a 11680 stop. I still do not want to be short the DAX at this time.
June FTSE
Late on Friday the FTSE traded lower to my 6765 buy level. As I did not want to hold a long position over the weekend I covered this position just before the close at my revised 6778 T/P level and I am now flat. If you were brave enough to hold this position over the weekend the market is now trading at 6850 and I would take my gain here and go flat. Today I will again look to buy the market on any dip lower to 6750/6790 with a 6720 tight stop. I still do not want to be short the market especially as we are severely oversold.
Dow Rolling Contract
My Dow plan worked really well on Friday with the market initially trading lower to my 23760 buy level before incredibly rallying to a rebound high at 24100 just before 6.00 pm. Unfortunately I covered this position too early at 23805. Subsequently the Dow traded lower to my second buy level at 23710 as outlined to my Platinum Members before having a small rally to my 23755 T/P level and I am now flat. The last 30 minutes of trading saw the Dow fall nearly 300 points from my exit price before the market rallied 320 points overnight off its 9.00 pm closing price for one of the most volatile trading sessions in many years. As long as the Dow can hold the key 23300 support level then this market will continue to be a buy on dips but a break and close below this key support opens up the possibility of an acceleration lower to 20700 and possibly 17700/19000. Given the extreme volatility I have to use wider buy ranges and trade in small size so has not to get stopped out. Today I will be a buyer on any dip lower to 23350/23600 with a 23250 stop. Given how oversold the Dow is trading I do not want to be short the market at this time.
June NASDAQ
My NASDAQ plan also worked well with the market trading lower to my 6530 buy level just before the close before spiking to my revised 6552 T/P level and I am now flat. For those members who did hold this long NASDAQ position over the weekend the market spiked to a high so far this morning at 6640 and if you have not taken your gain before I would do so here and go flat. The NASDAQ has strong support from 6475/6530 and today I will again be a buyer in this area with a 6430 stop. I still do not want to be short the market at this time especially after the market fell over 7.3% last week for its worst trading week in three years.
June BUND
I am still flat the Bund and today I will lower my buy level slightly to 157.95/158.35 with a 157.60 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1316/1325 with a 1309 stop.
Silver Rolling Contract
I will now raise my buy level to 16.20/16.50 with a 15.90 stop.
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