The US Dollar firmly rejected a test of the important 92.0 level on the narrow DXY index and US 10 year Treasuries recoiled from the mid-week achievement of a move onto a 3% handle to close at 2.96%. US stocks failed to hold their Intel and Amazon earnings-related opening bounce, the S&P 500 closing up just 0.1% On the week the S&P is flat, so recovering from the mid-week wobble that came in conjunction with 10 year Treasuries topping 3% for the first time since early 2014, thanks to some stellar earnings reports and fall-back in US Treasury yields. More than half of S&P500 firms have now reported, with EPS on average 24.6% up on a year ago, against pre-reporting season expectations of about 20%. The VIX finished the week back on a 15 handle from above 16 both on Thursday and a week ago.
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Early in the New York session, US dollar strength and just about the best intra-day levels of the day for Treasury yields came in the immediate wake of US Q1 GDP figures, showing annualised growth of 2.3% against the 2.0% market consensus and the Q1 Employment Cost Index (ECI), the latter printing 0.8% up from 0.6% in Q4 2017 and above the 0.7% expected.
The detail of the GDP data was less impressive however, with private consumption rising by only 1.1% despite the boost to incomes in the quarter from January’s tax cuts, and inventories making a relatively large 0.4% contribution to growth. The 2-year Treasury yields did end marginally higher on Friday – perhaps a nod to the strength of the ECI and what that means in terms of ongoing Fed policy normalization – with the 2s/10s yield curve ending the day and week some 2-2.5bps flatter.
In FX, it turned out to be a day of two halves, the USD up across the board though early morning NY trade with highs coming soon after the GDP print, and then giving it all back. Thus DXY was flat on the day but the broader BBDY down 0.2%. The 92.0 resistance level was always going to be a tough nut to crack on DXY, being the January breakdown level and the 200 day average and Friday’s price action proved it (complete with a gravestone doji on the candlestick charts, or so the charting aficionados tell us. All G20 currencies bar GBP were firmer on the day, so AUD ending Friday over half a percent back from its intra-day low of 0.7532.
The Sterling story was all about GDP, the pound dropping by 1% after Q1 UK GDP printed just 0.1% to see odds on a May 10th BoE rate rise slashed to less than 25% from around 60%. The jury will remain out for a while in determining the extent to which this was just a weather-related hit to growth or something a bit more pernicious. Either way, it has almost certainly taken a UK rate rise next week off the table.
In commodities, the main feature of Friday’s trade was a 2% fall in the LMEX index, with both copper and aluminium off more than 2%, the latter on reports that Russian oligarch Oleg Deripaska is now set to give up control of Rusal by reducing his majority stake in EN+, its London-listed parent company. On the week, LMEX is off almost 5%, oil and coal were mixed and gold down 1% thanks largely to a firmer USD.
CFTC futures market FX positioning data for the week ending Tuesday April 24th shows only modest reductions in net speculative longs in EUR, GBP and NZD, much less than the spot market price action would have had you believe. As I often note though, significant shifts in reported positioning tend to lag big moves in spot, often by several weeks. Either that, or there is a lot more downside potential for these currencies from still-stretched long positioning. The overall USD short (than in notional terms was at a post-2011 high the week before) has been trimmed by about 13%.
In US rates markets, the move higher in 10 year yields to 3% has been accompanied by an extension of already extreme net speculative shorts, to a new record, one reason at least for caution against the likelihood of a further rapid move higher in yields.
This morning on the Economic Front we already had the release of German Retail Sales which came in much weaker than the +0.8% expected with a -0.6% print. Next at 1.00 pm we have German CPI and this is followed at 1.30 pm by US Personal Income/Spending and the PCE Deflator. At 2.45 pm we have the Chicago Purchasing Managers Survey. Finally we have Pending Home Sales and the Dallas Fed Manufacturing Index at 3.00 pm and 3.30 pm respectively.
June S&P 500
My S&P plan worked well with the market trading lower to my 2661 buy level with a 2658 low print before rallying to an overnight high at 2680.50. As I wanted to hold on to last week’s gains I covered this position too early at my revised 2664 T/P level and I am now flat. It is so difficult to be short the S&P for any length of time as shown by the huge rebound off Tuesday’s aggressive sell-off. If the S&P can break and close over 2700 it will be a strong buy signal opening up the possibility of a move higher to 2800. Today I will again look to buy the S&P on any dip lower to 2659/2669 with a 2653 stop. My only interest in selling the S&P today is on a further rally higher to 2697/2707 with a 2713 stop.
EUR/USD
The Euro having tested the 1.2050 support level on Friday before rebounding as the market is oversold after its near 350 point fall in the last two weeks. I am still flat and today I will now raise my buy level to 1.2010/1.2060 with a 1.1970 stop. I will also raise my sell level slightly to 1.2200/1.2240 with a 1.2275 stop.
June Dollar Index
As mentioned in my Economic Commentary above the Dollar could not break the key resistance at 92.00 before spending the rest of the session trading lower. I am still flat and today I will leave my buy level unchanged from 90.55/90.95 with the same 90.20 stop. I still do not want to be short the Dollar at this time.
June DAX
The DAX continues to trade sideways to higher without being able to break its 100 Day and 200 Day Moving Averages. In my opinion it is only a matter of time before we take out this key 12690/12750 resistance area. I am still flat the market and today I will now raise my buy level to 12450/12520 with a 12390 stop.
June FTSE
There is no stopping the FTSE’s rally with the market now trading over 600 points higher than the lows made a few weeks ago. This rally has been helped greatly by the renewed weakness in Sterling with Cable which was trading over 1.44 earlier this month is now trading with a 1.37 Handle. Even though the FTSE is severely overbought it is very difficult to be short and today I will now raise my buy level to 7370/7420 with a 7335 tight stop.
Dow Rolling Contract
The Dow came close to my sell level overnight before having a small sell-off. With the McClellan Oscillator closing in positive territory after last week’s wobble it is very difficult to be short the Dow. Incredibly the Dow is now within 200 points of last week’s high and this despite the Dow trading at 23800 last Thursday. Today I will be a small buyer on any dip lower to 24100/24250 with a 23995 tight stop. I do not want to be short the Dow at this time especially as I have a higher sell level in S&P above the market.
June NASDAQ
The NASDAQ had a wild trading session on Friday. The market could not hold onto earlier gains before getting hit hard to my 6660 buy level. Unfortunately the market just missed my second buy level at 6620 with a 6623 low print before rallying into the close. As I wanted to be flat over the weekend I covered this long position at my revised 6672 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 6590/6640 with a 6545 tight stop. I still do not want to be short the NASDAQ at this time.
June BUND
This is a frustrating market to trade at this time. I have had the correct view in buying the dips but unfortunately I was stopped out of two long position last week before the Bund rallied hard and I am still flat. Today I will leave my sell level unchanged from 158.95/159.35 with the same 159.65 stop. I will now lower my buy level slightly to 157.45/157.95 with a 157.15 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip lower to 1295/1303 with a 1289 stop. Remember a break and close below 1290 is a major sell signal while a break and close over 1375 is a major buy signal.
Silver Rolling Contract
No change as I am still long at 16.85 with the same 16.35 stop and revised 16.70 exit level. I have had this position too long and if I am not stopped out of this trade I will probably cut this position before the end of the day. I will keep my Platinum Members updated to any changes.
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