The US Dollar rally ground to a halt late yesterday amid continued US political machinations and uncertainty over the trajectory for inflation in the latest FOMC Minutes. It is no surprise then to see the USD (DXY) -0.4% across the board and US Treasury Yields down 4.0bps to 2.23%. The key for markets will be whether the Minutes represent a genuine “Break Me Shake Me” moment for the Fed’s dotpoints or whether the Fed remains committed to its rate hike trajectory. The market currently only prices a 36% probability of a December Fed rate hike and only 1.3 hikes are priced by the end of 2018 compared to the Fed’s dotpoints of 4.
To mark my 1400th 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 email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 58 points yesterday and is now ahead by 613 points for August, having made 1096 points in July, 1023 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.
On the Minutes, while “most” FOMC members still expect inflation to pick up over the next couple of years, “many” still see some likelihood that inflation might remain below 2% for longer than they currently expect and “several” indicate that the risks could be tilted to the downside. It’s clear from this that the FOMC is split on the trajectory for near term inflation and that the Fed will be monitoring inflation developments “closely”. While there is uncertainty around inflation, there was more consensus on the labour market which was assessed to be “close or below” its longer-run normal rate. In such a situation “a few” expressed concerns of the possibility of overshooting full employment. On the balance sheet, members noted that an announcement it could happen “relatively soon” and the Fed’s own survey notes the market expects a September announcement.
As for politics, President Trump disbanded two of his Economic Councils following resignations from a number of CEOs (eight in the past week!). The disbanding of the councils comes as a surprise given the initial fanfare when they were created and marketing as helping to advance his manufacturing and infrastructure agenda. For the market, it is another reason why Trump’s policy agenda is going nowhere fast soon – a point also made in the Fed Minutes where several participants noted uncertainty was tending to weight down firms’ spending and hiring plans.
In FX, there was broad US Dollar weakness (DXY -0.4%). Topping the leaderboard were the commodity currencies with the Aussie +1.4%, Kiwi 1.1% and CAD +1.0%. The strength in the commodity currencies is partly a story of US Dollar weakness, as well as from strength in industrial metal prices. The AUD currently sits at 0.7930 and whether it approaches 0.80 will likely hinge on this morning’s Employment report.
Zinc rose 5.5% to be above $3,000 a tonne for the first time in almost a decade and Aluminium is approaching a three year high. Supporting commodities in recent days has been strong Chinese steel production, weakness in the US Dollar and reports that China is acting to shut down illegal aluminium and steel plants to cut pollution levels and excess capacity. Zinc has benefited also from Glencore suspending some output in early 2017.
The other currency move worth noting is the Euro. While it closed up 0.3%, it initially traded lower by 0.4% on reports that Draghi would not deliver a new policy message at the Jackson Hole Conference and will instead focus on the theme for the conference which is “Fostering a Dynamic Global Economy”.
The other major was in oil with the WTI oil price sliding 1.5% to $46.86 a barrel. IEA data revealed US crude production had hit its highest level since July 2015 at 9.5m, evidence that US shale oil producers continue to ramp up production and presenting a challenge to the OPEC’s oil production ceiling. Libya also noted it had increased production at its Sharara oil filed.
This morning on the Economic Front we have UK Retail Sales at 9.30 am and this is followed at 10.00 am by Euro-Zone CPI and Trade Balance. At 12.00 pm we have the Minutes from the last ECB Meeting. Markets will be looking at any discussion around the Asset Purchase Program given the language was unchanged in the post-meeting statement despite the previous Minutes noting this item is being discussed (will it be modified in September and when will it begin?). Any hints of worry around the ongoing surge in the Euro will also be observed. Next at 1.30 pm we have the US Weekly Jobless Claims and the Philly Fed Business Outlook. Finally we have Industrial Production and the Leading Index at 2.15 pm and 3.00 pm
Meanwhile the Fed’s Kaplan speaks in Texas at 6.00 pm
September S&P 500
For those members who did not mind some risk then my S&P call worked perfectly with the S&P hitting my 2472 sell level ahead of the FOMC Minutes before falling 10 Handles and then spend the rest of the session trading sideways to higher. As the Platinum Service is having a very good month I want where possible to protect these gains and after the S&P missed my initial 2472 sell level yesterday morning I pulled my order ahead of the FOMC Minutes and I am still flat. The S&P has traded sideways for the last 48 hours as traders try to decide whether the S&P will make new highs or have a more nasty decline ahead of it. The fact that the S&P is so close to all-time highs the odds of a new high are increasing. However for this to happen we need to break and close over 2475. I still believe that the market is close to making a long-term top but as I keep saying we need to see a sell extreme that lasts for more than a few days before we can deal with this scenario. These are still thin summer markets with most traders on holiday for another 2/3 weeks. Today I will now raise my buy level slightly to 2451/2457 with a 2446 stop. My only interest in selling the S&P is now on a rally higher to 2478/2484 with a 2489 stop which is just above the 2488.50 all-time high from last week.
EUR/USD
My Euro plan again worked well with the Euro trading lower to my 1.1685 buy level before rallying. Again as I wanted to be flat ahead of the FOMC Minutes I covered this position at my revised 1.1705 T/P level and I am now flat. As mentioned yesterday the Euro has strong support from 1.1640/1.1685 and today I will now lower my buy level slightly to 1.1620/1.1660 with a 1.1585 stop. Meanwhile I will leave my sell level basically unchanged from 1.1835/1.1875 with a 1.1905 stop.
September Dollar Index
Apart from my long Silver position I went into the FOMC Minutes flat the other markets. After the Minutes were released the Dollar quickly sold off to my 93.40 buy level. I am still long and will only add to this position on any further move lower to 93.10 with the same 92.90 stop.
September DAX
A combination of an okay Euro-Zone GDP data and a lower Euro helped propel the DAX higher where it again met strong resistance at the 12300 area before selling off on the back of some Euro buying. I am still flat the market and today I will now raise my buy level to 12085/12140 with a 12040 stop. Despite the DAX having difficulty in breaking above 12300 I still do not want to be short the market at this time.
September FTSE
Following the release of the stronger than expected UK Average Earnings the FTSE rallied strongly with the market unfortunately missing my 7310 buy level before the subsequent rally. With Sterling continuing to weaken there is no point in being short this market and today I will now raise my buy level to 7315/7345 with a 7290 tight stop.
Dow Rolling Contract
My Dow plan also worked well with the market trading higher to my 20080 sell level with a 20086 high print before falling 80 points. Again as I wanted to be flat ahead of the FOMC Minutes I covered this short position at my revised 20062 T/P level and I am now flat. Yesterday’s high was less than 100 points from last week’s 22179 all-time high. This is still a bull market and that fact has to be respected despite my long term view that we are in a major bubble where most of the Dow and S&P stocks yield between 1.25 and 2.00% Today I will now raise my buy level to 21850/21930 with a 21795 stop. My only interest in selling the Dow is on a further rally higher to 22100/22160 with a 22215 stop.
September BUND
No change as I am still a seller on any rally higher to 164.35/164.75 with a 165.05 stop.
Gold Rolling Contract
I am still flat Gold which initially came close to my 1262 buy level before rallying after the release of the FOMC Minutes. In the process Gold again closed over the key 1275 pivot point as the market now looks to break the key resistance level from 1300/1310. Today I will now raise my buy level to 1268/1274 with a 1262 stop.
Silver Rolling Contract
Unfortunately Silver just missed my second buy level at 16.55 before rallying on the FOMC Minutes to hit my 17.05 T/P level and I am now flat. Silver continues to underperform Gold which is a worry and is why I am reluctant to chase this market higher after its large move up since its July 10 low print. Today I will only look to buy Silver on any dip lower to 16.60/16.90 with a 16.35 stop.
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