News wise, nothing bad has happened in or to Australia since I wrote yesterday’s economic commentary, yet the AUD sits almost a full cent lower than where we left it. In truth, it is a case of guilt by association, following a pummelling meted out to other ‘commodity currencies’, notably the Canadian dollar after the Bank of Canada cut it policy rate by 0.25% down to 0.5% (only half expected in market pricing and economists’ polls) and the NZD took a fresh hit from another very poor Global Dairy Trade auction. The latter sees average prices down a cool 10.7%, bringing with it speculation that the 2015/2016 milk pay-out could now be nearer $4 than $5.
For anybody following my New Platinum Service it made 125 points yesterday and is now up nearly 1100 points for the month. In June the total return was a 3045 point gain.
Also not lost on the NZ rates market and with that the currency, will have been the Bank of Canada’s contention that the so called ‘output gap’; is significantly larger than anticipated. If NZ CPI prints softer than expected today then this view – or concern – will be given fresh succour. So the NZD is off 1.8% in the past 24 hours, the CAD is – 1.46% and AUD/USD has fallen by 1.01% and in doing so has made a new cycle low of 0.7354. It has to be said that the size of the falls also owes something to a generally stronger US Dollar, though weakness in other currencies is for the most part limited to no more than 0.5%.
US Dollar gains have been assisted by a combination of a series of moderately better than expected incoming US economic data, and Fed chair Janet Yellen’s prepared testimony to Congress in which she re-iterated the view that it is likely to be appropriate to take the first step toward normalising Fed policy sometime this year. No clues on timing from Yellen, through San Francisco Fed President John Williams – a current FOMC voter and whose views are often regarded as quite closely aligned with Yellen’s – has just crossed the wires saying that September would be a ‘very plausible’ time to start raising interest rates. The September Fed Funds futures contract currently ascribed only about a 35% probability to a September (quarter point) move. Immediately after Yellen’s testimony had finished, and subsequent Q&A and which saw the initial jump in US Bond Yield more than fully retraced.
As for the US data, we’ve had the Empire (New York state) manufacturing survey at 3.86 up from -1.98 (3.0 expected), core PPI +0.3% (0.1% expected and previous) and Industrial Production up by 0.3% (more than reversing the 0.2% May job and just better than the 0.2% expected). Also to note is a slightly softer than expected outcome for UK wages growth within the latest employment data (up to 2.8% on a 3-month year-on-year’s basis from 2.7% (excluding bonuses) and beneath the rise to 3.0% expected. The Unemployment Rate also rose slightly, to 5.6% from 5.5%. Despite this, Sterling is the only G10 currency to have bucked the stronger US dollar trend yesterday and by definition is therefore showing a sharp extension of the recent gains against the AUD (now 6% up on a month ago), NZD and the Canadian Dollar.
This morning on the economic front we have Euro-Zone Trade Balance and CPI at 10.00 am. This is followed by the ECB Rate announcement at 12.45 pm and Dragi Press Conference at 1.30 pm. At the same time as the press conference, the latest US Jobless Claims will be released. At 3.00 pm we have the NAHB Housing Market Index and the Philly Fed Business Outlook. Later this afternoon Fed Chair Yellen will give her Semi Annual Testimony to the Senate Banking Panel. The prepared Testimony will be the same, but some of the questioning will be different. Finally at 9.00 pm we have the Net Long-Term TIC Flows.
September S&P 500
My short 2103 S&P position finally worked out late in the US trading session with the market having a nice sell-off which enabled me to cover this position at 2096 as outlined earlier to my Platinum Members and I am now flat. The S&P has strong resistance from 2109/2114 and today I will again look to go short in this area with a tight 2118 stop. My only interest in buying this market is still on a drop to Monday’s ‘Open Gap’ from 2074/2079 with a 2069 stop.
EUR/USD
The Euro was heavy for most of yesterday’s trading session with the market eventually hitting my 1.0955 buy level. I am still long and today I will leave my stop at 1.0910. If I am stopped out of this position I will be a more aggressive buyer in front of 1.0860 with a 1.0830 stop. I still do not want to be short the Euro at this time.
September Dollar Index
The Dollar also rallied to my 97.30 sell level. I am still short and I will also leave my stop the same at a tight 97.70.
September DAX
Unfortunately the DAX just missed my 11610 sell level by five points before having a nice 120 point decline and I am still flat. With so much weighing on the Greek Bailout vote and the ECB Rate announcement later I am going to stay flat until we get this information out of the way. If the DAX rallies strongly following these announcements I will again look to go short from 11670/11720 with a 11750 stop. I still do not want to be long the DAX at this time.
September FTSE
No change as I am still a small seller on any rally higher to 6740/6770 with the same 6795 stop. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
My short 18065 Dow position finally worked out late in the trading session as we had a nice dip which enabled me to cover this position at 18020 as outlined in a separate email to my Platinum Members and I am now flat. Today my only interest in selling this market is on a rally higher to 18140/18190 with a 18225 stop.
September BUND
My BUND plan did not work out well yesterday as shortly after the open the BUND was firm all day with the market hitting my 152.15 sell level before stopping me out of this position for a small loss at 152.55 and I am now flat. Today I am going to stay flat as I am surprised by yesterday’s rally and take another look at the market tomorrow.
Gold Rolling Contract.
My worries about how heavy Gold has been trading over the past few weeks certainly proved to be the case yesterday. Eventually Gold hit my 1144 buy level but the fact that I am already short the Dollar and long Silver I have decided to cover this position at 1149 and I am now flat. Today my only interest in buying Gold is on a dip to 1129/1136 with an 1123 stop.
Silver Rolling Contract
I am glad that I also lowered my buy level for Silver with the market eventually hitting my 15.05 buy level. I am still long and today I will leave my stop the same at 14.40.
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