Just before the New York close on what was another extraordinary volatile trading session the RBNZ cut its key rate to 2.50% from 2.75%. In the statement the RBNZ has noted that it expects to reach its inflation goal at current policy settings and that the rise in the exchange rate is unhelpful and further depreciation would be appropriate. Some easing bias remains with the Bank commenting that it could reduce rates if “circumstances warrant”. The initial reaction saw the NZD drop to 0.6582 from pre-announcement level of 0.6641, however this move was quickly reversed. The NZD has been squeezed higher and is currently trading at 0.6693, 0.8% higher than it pre RBNZ level.
For anybody following my New Platinum Service it made 188 points yesterday and is now ahead by 710 points for December. The previous six months saw gains of 1510, 1600, 2833, 2195, 1810 and 3045 points respectively. If anyone is interested in my Platinum Service please email me on bryan@tradernoble.com for details.
Looking at yesterday’s price action the moves in Oil prices are still the dominant driver. In the early part of the session equity stocks on both side of the Atlantic were boosted by news that chemical giants Dupont and Dow Chemical were in advanced talks to merge. Then, a report from the US Energy Information Administration noted that crude-oil inventories fell 3.6 million barrels last week. The initial reaction to the news boosted equities higher and it also provided a leg up to commodity related currencies. However a closer look at the report revealed a larger than expected stockpile of refined products, earlier gains in Oil prices were quickly reversed with the reaction triggering a selloff in equities and commodity related currencies.
For currencies the net effect from the moves in oil means that the USD is weaker against safe haven/surplus account currencies such as the JPY, CHF and EUR. Notably, the steady rise in the Euro has helped it reached its strongest level in a month. In part the move higher in the Euro was helped by comments from ECB Nowotny who said that analysts had formed unrealistic expectations ahead of last week’s ECB meeting. “It was absurd what expectations were expressed”.
While commodity related currencies such as the AUD are little changed, they did have a volatile session. Prior to move higher in Oil, the AUD traded to a low of 0.7172, but as equities and Oil rallied, the currency rose to a high of 0.7246. Then the selloff in Oil pushed the AUD back down below 71c and now is back to almost where it started at 0.7233.
Looking at core Global Bond yields, comments from ECB Nowotny appear to have contributed to the move higher in German Bunds. 10y Bund yields closed 2.9bps higher at 0.598%, 10y UK Gilts rose by up 5.4bps to 1.874% while in the US the move in Oil prices has weighed on Treasury yields in spite of supply pressures, with the 10y note 1.1bps lower and currently trading at 2.207%.
Apart from the large move in the Euro all the action was concentrated in the equity markets with the Dow trading in a 350 point range before settling down nearly 1%. The DAX got hammered again and at one stage yesterday evening was down over 900 points from last Thursday’s pre Rate announcement. Please have a look at the share prices of most main Hedge Funds as given the size of their positions and lack of liquidity they are finding it very difficult to exit their positions and are thus having an extremely bad trading year.
This morning on the economic front we have UK Trade Balance at 9.30 am. The Bank of England also meets later today with their Interest Rate announcement due at 12.00 pm, and while no change is expected, close attention will be paid to the voting split. The voting is anticipated to remain at 8-1 with Ian McCafferty retaining his tightening bias. The Minutes, which will be released along with the rate announcement, should also outline how the Bank’s thinking has changed since November. This is followed at 1.30 pm by the US Weekly Jobless Claims and the Import Price Index. Finally at 7.00 pm we have the US Monthly Budget Statement.
The Swiss National Bank (SNB) has its Quarterly Meeting and the consensus is for the Bank to keep the deposit rate at a record-low of -0.75%. The general view here been that the SNB can afford to wait and assess the impact from the recent ECB action as well as the possible rate hike by the Fed next Wednesday.
Both the ECB’s Coeure and the Bundesbank’s Weidmann are due to speak today at 11.30 am and 6.00 pm respectively.
December S&P 500
The S&P had yet another wild trading session yesterday but interestingly despite the S&P closing down 0.8% the McClellan Oscillator only fell 9 points to close with a negative reading of -183. As nearly all my recommendations from yesterday’s commentary got hit shortly after I posted I had to cover some positions early given my risk exposure. After the S&P traded lower to my average 2055 buy level I unfortunately covered this position too early at 2060.50 and I am now flat. Despite the up and down volatility in the S&P I did not do another trade as I was in the IG Index studios in London given an interview on the markets which you can see on IG Live on the igindex.co.uk website. Last night the S&P closed below its 50 Day Moving Average while interestingly 70% of the S&P stocks are now below their 200 Day Moving Average showing how weak the internals of the market are currently. However with the Fed Meeting next Wednesday and the Quadruple Expiration on the following Friday, traditionally whatever low we have in the S&P on the Thursday/Friday in the week before Expiration usually holds. For these reasons I am reluctant to still go short the market especially with all the intervention by the Central Banks who have the liquidity to control any major falls in the Indices. Today I will again look to buy the S&P on any dip lower to 2035/2042 with a 2029 stop. If I am taken long and subsequently stopped out of this trade I will use my 5 Handle Rule to go long again with a stop below whatever new low is printed. Despite the negative price action I do not want to be short the S&P at this time.
EUR/USD
The Euro is not giving me a chance to get long as each day this week the Euro has just missed my buy level by fractions and I am still flat. You all know my view at this stage and I had a late dinner with an economist friend of mine in London last night who told me the money lost by the main banks and hedge funds last Thursday was scary. The number of short positions in the Euro going into the ECB Meeting was at near record levels thus the accounting for the violent move higher. Today I will move my buy level higher to 1.0880/1.0925 with a 1.0845 stop. Remember we are now back above the previous key level at 1.0850 which we have managed to close above for the past two trading sessions.
December Dollar Index
No change as I am still flat the Dollar and today I will lower my sell level to 98.20/98.50 with a 98.80 stop.
December DAX
Thankfully I had no buy level in the DAX yesterday as the market continues to get slammed since last week’s disappointment from Dragi and the ECB. As I mentioned in my main commentary above the DAX at one stage yesterday was 900 points lower from last Thursday’s high. I cannot believe that having sold the DAX at 11310 ahead of Dragi that I covered this position at 11275. This morning the DAX is trading near the bottom of its Bollinger Band and today I will be a small buyer on any dip lower to 10400/10460 with a 10355 stop. Given how oversold the DAX is I do not want to be short the market at this time.
December FTSE
My FTSE plan worked well yesterday as shortly after I posted the FTSE traded lower to my 6125 buy level before having a nice rally which enabled me to cover this position at my 6160 T/P level as outlined earlier to my platinum Members and I am now flat. The FTSE is still oversold and today I will again look to buy the market on any dip lower to 6050/6080 with a 6025 stop. I still do not want to be short the FTSE at this stage despite the negative price action.
Dow Rolling Contract
The Dow plan worked really well yesterday as shortly after I posted the Dow sold off to my 17530 average buy level before rallying over 200 points which enabled me to cover this position at my revised 17600 T/P level and I am now flat. Just like the S&P above I do not want to be short the Dow at this time especially ahead of the FOMC and December Expiration next week. Today I will look to buy the Dow on any dip lower to 17370/17430 with a 17330 stop.
March BUND
The BUND plan worked well yesterday as just after I posted the BUND traded higher to my 158.80 sell level before having a nice 60 point sell-off which enabled me to cover this position at my 158.52 T/P level and I am now flat. Today I will again look to go short on any rally higher to 158.85/159.15 with a 159.40 stop.
Gold Rolling Contract
My Gold plan also worked well as shortly after lunch Gold traded lower to my 1071 buy level before having a nice rally which enabled me to cover this position at my 1078 T/P level as outlined to my Platinum Members and I am now flat. Today I will again look to buy Gold on any dip lower to 1055/1065 with a 1049 stop.
Silver Rolling Contract
No change as I am still long at 14.40 with the same 13.90 stop.
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