If I had to try and summarise the best part of three hours of testimony before Congress by Fed Chair Janet Yellen in one sentence, it would be something like ‘Janet fails to go full dove’. Certainly looking at the performance of US Interest Rates markets, that sees 2 year Yields closing 2 bps higher on the day, it is clear that the Fed is not even close to wanting to endorse prevailing pre-testimony market pricing. This still assigns only about a 50% probability to the next Quarter point hike to the Fed Funds rate by year end, and does not have a full hike priced in before mid-2017.
To mark my 1000th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2500 for my Platinum Service which includes all my Premium Daily Commentaries and ¼ updated emails throughout the trading day. This offer is open to existing and new members and if anyone is interested please email me on bryan@tradernoble for details.
For anybody following my Platinum Service it made 100 points yesterday and is now ahead by 1125 points for February having made 3365 points in January. Since I started this service last June it has generated a return of over 18000 points.
To be sure, Yellen was quick to acknowledge in her prepared testimony that ‘financial conditions in the United States have recently become less supportive given equity price falls, higher borrowing rates for riskier borrows and a further appreciation of the Dollar’. She was also upfront about the risk posed to US economic growth, saying ‘Most notably, although recent economic indicators do not suggest a sharp slowdown in Chinese growth, declines in the Foreign exchange value of the Renminbi have intensified uncertainty about China’s exchange rate policy and the prospects for its economy’.
The ‘risk’ sections above were nevertheless prefaced with now the all too familiar positive comments about further progress towards the Fed’s objective of maximum employment, and that despite the likelihood of inflation remaining low for a while, a repetition of FOMC confidence that inflation ‘will rise to its 2% objective over the medium term’. On the latter though, Yellen does acknowledge that alongside the falls in market based measures of inflation to historically low levels saying ‘some survey measures of longer-run inflation expectations are also at the lower end of their recent ranges’.
Fed Vice Chairman Stanley Fischer said the bar to raising interest rates in March is very high indeed but that the Fed is still being careful not to rule anything out beyond that. Attention now focuses squarely on the forthcoming G20 Meeting in Shanghai on Feb 26/27 where the I presume the clarity on China’s currency policy will doubtless be sought, and perhaps too some discussion on whether more forward guidance on future monetary policy intentions of major Central Banks is once again appropriate.
Incidently, on the subject of negative Fed rates, Yellen implied the Fed was still looking into the legalities of this and its implications for the ‘plumbing of the payments system’ but was careful to describe these actions as no more than ‘prudent planning’ in light of European actions.
In other markets, European stocks rallied quite hard with the E600 closing 2% higher led by a 10% jump in the shares of Deutsche Bank following the news of its planned bond buy-back. This saw the Euro trade as low as 1.1160 before rallying stronger after the US stock markets reversed earlier gains which saw the Euro trade as high as 1.1330 while the USD/JPY got hammered and is currently trading below 112. The CAD also got hit hard after another slump in oil prices while Gold has broken through the $1200 barrier this morning.
We have no economic data of note due form the UK or Euro-Zone this morning while at 1.30 pm we have the latest US Weekly Jobless Claims. This followed at 2.45 pm by the Bloomberg Consumer Comfort Index. Finally at 3.00 pm Fed Chair Yellen will appear before the Senate Banking Committee in which the Q&A session following her testimony could be interesting.
March S&P 500
The S&P had another wild trading session yesterday following Yellen’s testimony the market closed the ‘Open Gap’ as expected at 1877 but unfortunately missed my 1880 sell level before spending the rest of the session trading lower to close at 1842. I cancelled my buy level in the S&P before going to sleep as I did not like the way USD/JPY was trading and with the Yen now trading at 1.1180 all equity markets are getting hammered again this morning with the S&P now probing the 1820 level. I am still flat the S&P in what are the most volatile trading conditions since the GF crisis in 2007/2008. The S&P has support at its January spike low at 1804.25 and today I will look to buy the market on any further dip lower to 1798/1805 with a 1793 stop. If I am stopped out of this position I will be a very aggressive buyer on any further dip lower to 1755/1775 with a 1740 stop. Given how oversold the S&P is trading and the fact that we can have these violent rallies out of nowhere I do not want to be short the S&P at this time.
EUR/USD
Shortly before the New York close the Euro traded higher to my 1.1300 sell level with the market trading lower to a 1.1273 low print overnight. As I was not comfortable in being short the Euro I covered this position at 1.1290 as outlined in a late email to my platinum members and I am now flat. Although the Euro is extremely overbought it feels like it wants to move higher especially as we have now broken the key 1.13 major resistance level. However given how overbought the Euro is trading and if the equity markets reverse course later then the Euro could easily get hit hard. For these reasons I will look to sell the Euro on any further spike higher to 1.1390/1.1430 with a 1.1460 stop. I still do not want to be long the Euro at this time.
March Dollar Index
The Dollar has gotten hammered over the past 10 days with the market now 5% weaker in this period. As a result the Dollar is trading at the bottom of both its Bollinger Band and Williams Index and is due a bounce. Today I will look to buy the Dollar on any further dip to 94.60/94.90 with a 94.30 stop.
March DAX
Thankfully the DAX missed my buy range last night before the market closed at 9.00 pm. Subsequently I emailed all my platinum members to pull their bid in the DAX which is just as well with the DAX trading another 200 points lower this morning on the continuing weakening European economies as shown by the German Bond yields which are now incredibly in negative territory out to eight years. The weaker Dollar is also having an effect with the DAX now trading 2600 points lower since the famous ECB Meeting on December 3rd last. With this king of volatility it is so difficult to give a call especially when the DAX just missed my 9190 sell level with a 9130 high print before rolling over 400 points or 4.5% since yesterday afternoon. These are huge moves. Today I have to anticipate some sort of rally across the board and I will look to buy the DAX on any further dip to 8590/8650 with a 8530 stop. Given how oversold the DAX is trading I do not want to be short the market at this time.
March FTSE
My long 5600 FTSE position worked well yesterday as thankfully after I posted the FTSE traded back through my original buy level before having a nice rally which enabled me to cover this position at my 5650 T/P level and I am now flat. I must say I am very surprised how heavy the FTSE is trading with the marker trading at 5470 as I go to print. Just like the other Indices the FTSE is extremely oversold. However I would expect a hail mary rally to appear at some stage today and for this reason I will look to buy the market on any dip lower to 5400/5440 with a wider 5350 stop.
Dow Rolling Contract
My Dow plan worked well yesterday as following Yellen’s testimony the Dow traded lower to my 15990 buy level before having a nice rally to 16100 which enabled me to cover this position at my revised 16030 T/P level and I am now flat. Incredibly the Dow which traded over 16200 yesterday afternoon is now nearly 600 points lower. I must say what were the Fed at when they hiked rates in December and who is advising them when it was clear the US apart form the Payroll data was already in recession. The Dow is now very oversold and I will look to buy the market on any further dip lower to 15480/15550 with a 15420 stop.
March BUND
Thankfully the BUND did not hit my sell level before the 9.00 pm close last night as the market has just exploded higher this morning on the weaker equity markets. We are now in a major crisis with over 30% of European Bond markets trading with a negative interest rate. How are pension funds going to survive in this environment especially when this bond bubble bursts. I have just gone short the BUND at 165.70 with a 166.10 stop. If I am stopped out of this position I will look to go short again in front of 166.25 with a 166.60 stop.
Gold Rolling Contract
Gold was trading heavy yesterday as the market looked like it was going to hit my 1170 buy level before trading higher overnight on the worsening economic situation. Today I am not going to chase this market higher and I will leave my buy level unchanged at 1165/1175 with a 1158 stop.
Silver Rolling Contract
No change as I am still only a buyer on any dip lower to 14.65/14.95 with a 14.30 stop.
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