To the evident delight of a section of the offshore hedge fund community, the RBNZ has just delivered on its recently instated easing bias, with a 25-point cut to the OCR to 3.25% and accompanied by a statement that further easing may be appropriate. This virtually assures a follow-up 25-point cut to 3% next month (23 July).
For anybody interested in my New Platinum Service, it made 130 points on Tuesday, and 170 points on Monday and 165 points yesterday. Last week it generated 955 points. If anybody is interested please email me on bryan@tradernoble.com for more information.
Immediate market reaction to the cut is to see the AUD/NZD cross above 1.10, and NZD/USD lose 150 points to below 0.7050. Ahead of the RBNZ, the main market development yesterday has been the further back-up in bonds yields, led by Germany where the 10 year Bund pierced the 1% barrier for the first time since last September (high of 1.06%). This had the effect of propelling EUR/USD to its highest level since 18 May (1.1386). A subsequent pull back to 0.98% saw the single currency ease back to around 1.1325.
US Treasury yields have also pushed higher, by another 5bps to 2.49% at 10 years (currently 2.48%). It’s notable that the ongoing back up in yields is not hurting equity market sentiment, where the S&P 500 closed with a 1.2% gain and following even stronger gains in Europe. Asset reallocation underway? My view of yesterday’s sharp reversal in the fortunes of USD/JPY, following remarks from BoJ Governor Kuroda that the Yen’s real (so inflation adjusted) effective exchange rate is quite low and shouldn’t fall further, is that since the key driver of the move from below ¥120 to above ¥125 was higher Treasury yields, then this latest back up augers well for an eventual return to above ¥125.
Background noise on Greece meanwhile remains both deafening and contradictory, to the point where it is largely being ignored. This includes news that Standard & Poors had further downgraded Greece’s sovereign rating deeper into junk territory, to CCC from CCC+, reflecting a view Greece may default in the next 12-months. The ratings agency suggests Greece could impose capital controls to staunch ongoing bank deposit outflows and may be forced to issue a parallel currency if the withdrawals continue. Yesterday also saw that the ECB has raised the amount of liquidity assistance it is providing to the Greek banking system, (the ‘ELA’) to €83bn from €80.7bn. After the yen, the best performing G10 currency in the past 24 hours has been Sterling. Not because of anything BoE Governor Mark Carney said in his annual Mansion House address to the City of London – entirely focused on banker conduct not monetary policy and suggesting stiffer penal sentences for market rigging offences – but an upside surprise on UK Industrial Pr0duction which printed +0.4% versus +0.1% expected.
Today on the economic front we have no data releases due from either the UK or the Euro-Zone. At 1.30 pm we have US Retail Sales which are expected to rise 1.1% from last month’s flat report. Also at the same time we have the Weekly Jobless Claims and Import Prices. Finally at 3.00 pm we have Business Inventories.
June S&P 500
Yet again the Bollinger Band and Williams Index have proven what a valuable trading tool that they are as clearly over the past 48 hours these indicators were telling you a large rally was coming in the market. Unfortunately the market did not sell off first to my 2074 buy level before having this 28 handle rally yesterday but thankfully we had no levels to go short and I am still flat. Given the fact that we closed over the previous resistance at 2095/2100 with such ease means the Bulls are back in control. Again with the Fed Meeting next Tues/Wed and the fact that we have the June Contract expiring next Friday I do not want to be short ahead of these key events. Today I will move my buy level higher to 2097/2102 with a 2091 stop. Remember a break and close over 2120/2126 opens up the possibility of a move higher to at least 2180/2210.
EUR/USD
My long 1.1240 position from Tuesday worked out very well yesterday as by the time the European Markets opened the Euro was trading at my 1.1320 take profit level and I am now flat. It is significant that for the third consecutive day the Euro has now closed over 1.1250. I still believe that the EUR/USD will trade higher to at least 1.1550/1.1600 as there is no doubt that after the route in the German Bund market that higher Bond Yields are here to stay. Today I will again be a small buyer on any dip lower to 1.1240/1.1270 with a 1.1215 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer in front of 1.1150 with a 1.1095 stop. I still do not want to be short the Euro at this time.
June Dollar Index
My short 95.80 June Dollar position worked out very well yesterday as shortly after the European Markets opened the Dollar was trading at my Take Profit level at 95.30 as indicated in my New Platinum Service and I am now flat. Today I will again be a small seller on any rally higher to 95.50/95.80 with a 96.10 stop.
June DAX
Unfortunately the Buy Extreme that I was looking for in the DAX happened yesterday with its huge near 500 point rally from the lows of Tuesday but this rally started firstly by just missing my buy level by 15 points which is very frustrating but again just like the S&P above at least we had no sell levels. Today I will move my buy level higher to 11120/11170 with an 11080 stop. Given the price action yesterday I do not want to be short the DAX at this time.
June FTSE
The FTSE also missed my 6710 buy level by just 11 points before going to have a 100 point rally and I am still flat. Again the Bollinger Band and Williams Index told you that we were going to rally hard in all the equity markets. Today I will be a small seller on any further rally higher to 6845/6875 with a tight 6895 stop. My only interest in buying the FTSE is on a drop to 6740/6775 with a 6720 stop.
Dow Rolling Contract
The Dow had a nice 350 point rally from the lows of Tuesday. The rally back above 17950 could be significant and with the key Fed Meeting and June Expiration both on next week I am not inclined to go short the Dow. Today I will be a small buyer on any dip to 17920/17960 with a tight 17880 stop.
September BUND
My Bund plan worked well yesterday as shortly after I posted the Bund traded lower to my 148.70 buy level before having a nice rally which enabled me to cover this position at 149.10 as indicated in my Platinum Service and I am now flat. The move higher in the Bund has been incredible over the past few weeks with Hedge Funds and Pension Funds now sitting on massive losses. I think back to March when Mexico were able to sell a 100 Year Bund at just over 4% and wonder what were these Funds doing in buying this particular Bond at this low Yield. Today I will again be a small buyer on any dip lower to 148.20/148.60 with a 147.70 stop.
Gold Rolling Contract
Gold had a reasonable volatile trading session yesterday. However with Silver struggling to push higher I am reluctant to chase Gold higher at this time. Today I will be a small buyer on any dip to 1165/1174 with a 1155 stop.
Silver Rolling Contract
No change as I am still long at 15.90 with the same 15.40 stop.
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