Well nothing like a Hydrogen bomb to get people’s attention. After a risk positive trading session on Friday, news on Sunday that North Korea successfully tested a more advanced nuclear weapon has this morning triggered a bid for safe haven currencies (JPY and CHF) while AUD and NZD are a little bit softer. We now probably need to wait for Europe to open to assess the full reaction from the weekend news. US data on Friday had something for everyone, but the lack of wage pressure has left the market convinced the Fed is not hiking until at least the end of 2018, favouring risk assets amid a goldilocks outcome of growth with no inflation. AUD was one beneficiary, CAD was the outperformer and NZD was the underperformer.
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 137 points on Friday on the first trading day of September, having made 1560 points in August, 1096 in July, 1023 in June, 1076 in May, 1375 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.
Friday’s US jobs report did nothing to change the perception of a solid US labour market, but devoid of meaningful upward inflationary pressures. Non-Farm Payrolls (August) printed at 156k, below expectations for an outcome of 180k while net revision to previous months totalled -41K. The Unemployment Rate edged up a tenth to 4.4%, disappointing expectations for a no change and hourly earnings rose 0.1%, below the 0.2% expected by the market (the yoy reading as unchanged at 2.5%).
Seasonal factors in August were seemingly again at play (in recent years the first August numbers disappoint, but then experience substantial upward revisions), but with the economy still on expansionary mode and recent Jobless Claims remaining near record lows, it still seems reasonable to expect further declines in the unemployment rate over the coming months. That said, the lack of wage growth despite the ongoing addition of new jobs, suggest there is still spare capacity in the labour market. For now, I think the data is good enough to encourage the Fed to announce its balance sheet unwinding plan in September, but an uplift in inflation over the coming months is still needed for a December Fed hike to occur.
Reaction to the US jobs report saw the US Dollar sold across the board while UST Yields rallied. But the move was quickly reversed with the seasonal factors explanation initially playing a roll and then further boosted by a stronger than expected ISM Manufacturing Report. The ISM index jumped to 58.8 in August from 56.3 in July (56.5 was expected), new orders fell slightly to 60.3 from 60.4, but employment rose to 59.9 from 55.2.
So while on index terms the US Dollar ended Friday little changed (BBDXY -0.02% and DXY 0.15%), its performance across G10 currencies was mixed. Ahead of the BoC policy decision this week the CAD was the big outperformer gaining 0.71%. USD/CAD dropped a big figure on the payrolls report and then only managed a small recovery, finishing the day at 1.2395, its lowest level since late June 2015. The AUD/USD also had a good day, gaining 0.35% and after going up and down with the US data the pair closed at 0.7975 (AUD now trades at 0.7947, after gapping lower at the open). NZD remained on the back foot closing the week at 0.7158, 0.26% down on the day (now at 0.7149).
The Euro came under pressure after a Bloomberg report suggested the ECB will discuss its tapering plans this week, but a formal decision is likely to be delayed until December. EUR closed the week at 1.1863, 0.42% down on the day. CHF was the big loser, down 77% following SNB’s Chairman Jordan’s dovish comments on the currency and policy.
Looking at speculative data released on Friday, the net short positioning against the USD vs G10 is essentially unchanged relative to the previous week and remains around -100k. Of note, AUD longs are now 7k higher at 67k and leverage accounts also extended their AUD longs, up 6k to 86k, the most since April 9, 2013. Meanwhile NZD longs were again trimmed, falling to 19k from 22k, EUR longs are at 87k vs 88k previously and Sterling short positions are now -52K vs 46K short last week.
Bloomberg reports The Governing Council will hold its first formal talks next week on the pace of asset purchases after December, when the current programme is scheduled to expire. Yet it’s conceivable that the decision won’t be finalized until the Dec. 14 meeting, according to euro-area officials familiar with the matter. That would leave around 10 trading days, during a holiday season when volumes are typically low, for market participants to sort out their strategy for the New Year.
Several reports suggest President Trump is considering cancelling the United States’ free-trade agreement with South Korea with a decision likely next week. Like with many previous moves from President Trump it is unclear whether the White House is really considering annulling the agreement, or wants to use the threat as a negotiating tactic to bring Seoul back to the bargaining table. North Korea’s bomb threat over the weekend is an additional consideration.
With the US Markets closed for the Labour Day Holiday, the only Economic Data of note due is Euro-Zone Sentix Investor Confidence at 9.30 am.
September S&P 500
Despite a weaker than expected NFP on Friday coupled with the weak Average Earnings Component the S&P rallied after a brief sell-off. However following the Nuclear Test by North Korea yesterday the S&P re-opened last night just below my initial buy level in Friday’s Commentary at 2461 before rebounding to a 2466.75 rebound high. Earlier this morning I emailed my Platinum Members to exit this trade at 2463 and I am now flat. With the US Cash Markets closed today and the Futures Market only open until 4.30 pm trading and volumes should be subdued unless we get a reaction form the US after yesterday’s missile test. There is no doubt this situation is getting dangerous and why it makes it difficult to have any overnight positions on board. The S&P has strong support at 2450 and today I will be a buyer of the S&P on any further dip to 2450/2456 with a 2444 stop. With such a large gap lower this morning I do not want to be short the S&P at this time despite the increase in Geo-Political risk.
EUR/USD
I am still flat the Euro which just missed my 1.1815 buy level after a volatile trading session of Friday with the Euro initially spiking to a 1.1980 high after the release of the US Payrolls. The Euro has strong support from 1.1770/1.1810 and resistance at last Monday’s 1.2070 high. There is no doubt the Euro is severely overbought as we wait for Thursday’s Key ECB Meeting followed by the Dragi press conference. Today I will leave my buy level unchanged from 1.1780/1.1820 with a 1.1750 stop. I will also look to sell the Euro on any rally higher to 1.1970/1.2010 with a 1.2040 stop.
September Dollar Index
Just after I posted on Friday the Dollar rallied to my revised 92.76 T/P level on my long 92.55 position. Subsequently after the NFP release the Dollar traded lower to the whole of me second buy range from 92.05/92.45 which put me long at an average rate of 92.25, before the market rallied to my second T/P level at 92.71 and I am now flat. Apart from a couple of trading sessions the idea of buying the dip in the Dollar has worked fantastic over the past few months. Today I will again look to buy the Dollar on any dip lower to 91.80/92.20 with a 91.50 tight stop.
September DAX
I am still flat the DAX which has opened lower on the back of the North Korea missile attack and I am still flat. With the key ECB Meeting on Thursday I would not be chasing this market lower and today I will now look to buy the DAX from 11930/11990 with an 11885 tight stop.
September FTSE
Shortly after the FTSE opened the market traded lower to my 7400 buy level. In the last few minutes the FTSE has rallied to my 7430 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7375/7405 with a 7350 tight stop.
Dow Rolling Contract
The Dow gaped lower on the re-open last night at my 21890 buy level. Again as I wanted to be flat ahead of writing today’s commentary I emailed my Platinum Members to exit this trade at 21910 and I am now flat. With the McClellan Oscillator closing strong on Friday with a +137 print I still believe the Dow to be a buy on dips unless we break the key 21500 support level. Today I will again look to buy the Dow on any dip lower to 21790/21855 with a 21740 stop.
September BUND
The Bund had a volatile trading session on Friday with the market closing near its low of the day. However on the back of the weaker opening to the stock markets the Bund is trading higher this morning. With the ECB Meeting on Thursday this is a key week for the Bund and today I will look to sell the market on any further rally to 165.20/165.50 with a 165.72 tight stop.
Gold Rolling Contract
The increase in Geo-Political risk sees Gold rallying strongly this morning. This break higher has a target level initially at 1375. I am still flat Gold and today I will now raise my buy level to 1316/1323 with a 1310 stop.
Silver Rolling Contract
Unfortunately Silver just missed my 17.35 buy level with a 17.43 low print on Friday and I am still flat. The fact that Silver has finally broken the key 17.76 resistance level could be significant and in light of this break I will now raise my buy level to 17.40/17.70 with a 17.10 stop.
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