The Canadian dollar is the standout winner in FX markets after the Bank of Canada raised rates by 0.25% to 0.75% as widely expected but did not deliver the ‘dovish hike’ some were expecting. US Bond yields and the US dollar are generally lower (EUR/USD The exception) after Janet Yellen’s Congressional testimony was interpreted in a slightly dovish light. This has pulled AUD/USD higher by default, aided also by what looks like a bout of profit taking on erstwhile winning long Euro trades and where positioning might have become somewhat stretched in the past week or so.
To mark my 1375th 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 contact me on firstname.lastname@example.org for details.
For anyone following my Platinum Service it made 10 points yesterday and is now ahead by 498 points for July, having made 1023 points in June, 1071 in May, 1376 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.
Markets seem to have concluded that Fed Chair Janet Yellen just blinked, now less confident that inflation is on track towards the Fed’s 2% target, with obvious implications for what that might mean for Fed policy. In fact, Yellen said under questioning that it is premature to reach a judgement that the U.S. in not on a path to 2% inflation over the next couple of years. She also reiterated that additional gradual rates rises were likely to be needed. But having earlier warned that there was uncertainty “about when – and how much – inflation will respond to tightening resource utilisation” and that recent declines in headline and core inflation were only “partly” the result of a few unusual reductions in certain categories of prices, the damage was already done.
Also noted was the comment that “because the neutral rate is quite low by historical standards, the Federal Funds Rate would not have to rise all that much further to get to a neutral policy stance.” That was really nothing new; remember Yellen and others have often made clear that as the economy continues to improve, the neutral rate will likely rise over time (from current estimates of near zero).
But no matter, US 10 year yields dropped from around 2.35% to 2.30% soon after Yellen started speaking, and have since only recovered to just shy of 2.32%. And as with last week’s ‘goldilocks’ Employment Report, equity markets liked what they saw as a slightly dovish tilt, and modestly extended the jump higher seen at the open prior to Yellen’s testimony. The S&P 500 closed up three quarters of a percent and the NADAQ by just over a percent. The Dow’s 0.6% jump to 21,532 represents a new all-time high.
On the question of whether or not she will be reappointed to the Chair when her first term ends next January – and following yesterday’s Politico report that she probably won’t – Yellen said in response to questioning only that it could be her last testimony simply because her current term ends in January, and that the matter of possible reappointment was for her and the President to discuss. All very politically correct.
Back to the Bank of Canada (BoC). It was the statement accompanying the quarter point rate rise to 0.75% that moved the CAD up by almost 1 ½ cents against the USD that has pulled AUD/CAD to a new post-January low of 0.9736. The BoC slightly upgraded its growth forecasts, now seeing the output gap closed by the end of this year. It expects to meet its 2% inflation objective before 2018 is out. This has left markets pricing another rate rise by year-end at over 98%.
Elsewhere the British Pound rallied notwithstanding the exit stage left of certain Scottish tennis player from Wimbledon, thanks to a fall in the Unemployment Rate to its lowest since 1975 at 4.4% and slightly stronger than expected earnings data (2% on the ex-bonus measure up from 1.8%). The latter does nothing to detract from the fact that real wages are going backwards given current inflation near 3%.
This morning on the Economic Front we have German CPI at 7.00 am and this is followed at 9.30 am by UK Credit Conditions Survey from the Bank of England. At 1.30 pm we have US PPI and the Weekly Jobless Claims. This is followed at 2.45 pm by the Bloomberg Consumer Comfort Index and at 3.00 pm by Fed Chair Janet Yellen’s Testimony before the Senate Banking Panel. Finally at 7.00 pm we have the Monthly Budget Statement.
Charles Evans and Lael Brainard are the two designated Fed speakers, both on the dovish side of the hawk-dove spectrum.
September S&P 500
Yesterday after Fed Chair Yellen spoke the S&P spiked higher, trading the whole of my sell range of 2434/2440 with an initial 2443 high print. The move higher saw me go short at an average rate of 2437. As the NASDAQ was rallying strongly with a 1% gain and the Dow was making new all-time highs I emailed my Platinum Members to exit any short position at 2440. The only good thing about this exit was the fact that the S&P dropped below 2437 as I sent the email which hopefully gave everyone a better exit level. While the Dow closed at a new all-time high the S&P is still trading below its 2451 equivalent high from June 19. This is negative divergence but with Yellen speaking to the Banking Committee this afternoon we may well see the S&P trade higher first. The S&P has strong resistance from 2455/2461 and today I will look to go short in this area with a 2466 stop. I will also raise my buy level to 2428/2434 with a 2422 stop.
I am still flat the Euro which closed back below its 2 year trend line at 1.1450 mentioned in yesterday’s commentary. Shortly after I posted yesterday morning the Euro spiked to a 1.1490 high before selling off nearly 100 points. However the Dollar Index did not make a new low so again we have intra market divergence between these two contracts. Today I will now lower my sell level to 1.1495/1.1535 with a 1.1565 stop. My only interest in buying the Euro is on a dip lower to 1.1280/1.1320 with a 1.1245 stop.
September Dollar Index
My latest long 95.50 Dollar position worked well yesterday with the Dollar rallying to my 95.75 T/P level and I am now flat. Today I will again look to buy the Dollar on any dip lower to 95.00/95.35 with a 94.70 stop. The single digit DSI reading still indicates a decent rally in the Dollar over the coming days/weeks.
Thankfully we had no sell level in the DAX yesterday as the market rallied strongly. The DAX is now trading 350 points higher than last Friday’s 12303 low print as yet again both the Daily Bollinger Band and Williams Index proved what a fantastic trading signal they are. I am still flat the DAX and today I will now raise my buy level to 12460/12520 with a 12410 stop. The price action continues to point to higher prices and as a result I still do not want to be short the market at this time.
Just like the S&P above the FTSE also traded the whole of my 7345/7380 sell range which put me short at an average rate of 7363. As I was already short the S&P, I emailed my Platinum Members to exit and short position at 7348 and I am now flat. As I mentioned yesterday the FTSE needs to break and close over 7380 to reverse its recent sell-off. Today I will now move my buy level higher to 7295/7330 with a 7265 stop. I do not want to be short the FTSE at this time especially after the market has reversed over the past few trading sessions.
Dow Rolling Contract
Thankfully we had no sell level in the Dow yesterday which again closed at new all-time highs at 21532 having made an earlier intra- day high at 21580. There is no doubt that this market is over extended but until we break the 21197 and 21169 price levels as mentioned yesterday, the Dow is still a buy on dips. Today I will now move my buy level higher to 21380/21440 with a 21330 stop. Until we get a sell extreme I still do not want to be short the Dow at this time.
Unfortunately the Bund missed my buy level before spending the rest of yesterday’s session trading higher as it looks to correct its severely oversold condition. Today I will now move my buy level higher to 160.80/161.15 with a 160.50 stop.
Gold Rolling Contract
I do not trust the price action in Gold especially given its large out performance versus Silver. Today I will only raise my buy level slightly to 1200/1208 with an 1192 stop.
Silver Rolling Contract
Silver has now rallied 5.5% since last Monday’s low at 15.17 again proving my point of what a fantastic technical signal the DSI is when we were at just 9% bulls. Given how cheap Silver is I much prefer to own it rather than Gold. I am still flat the market and today I will now raise my buy level slightly to 15.40/15.70 with a 15.10 stop.