Tuesday’s US Dollar resurgence accompanied by an improvement in risk appetite and hopes of progress on US tax reform came to an abrupt end courtesy of President Trump threat of a government shutdown, if funding isn’t included for the border wall promised in his campaign. The souring in sentiment has seen US and European equities end yesterday’s trading session lower while US Treasury Yields rallied. The Euro is stronger boosted by solid PMI releases and oil prices are also higher on news that US crude inventories went down for the eighth week in a row.
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 contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 92 points yesterday and is now ahead 1056 points for August, having made 1096 points in July, 1023 in June, 1076 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.
True to form, President Trump’s address in Phoenix unwound all the positive feeling that had been built around the prospect of a swift debt ceiling resolution and US tax reform. The US president threatened to take the US government to the brink of a shutdown, if needed, to pressure Congress into funding the border wall that was a centre piece of his 2016 campaign. He also said that he may end the North American Free-Trade Agreement.
The US Dollar was the first to react with USD/JPY heading south as the news broke. Then, in the European session the souring mood spread to the equity market with main European and US equity indices ending the day down between -0.30 and 0.50%. US bond yields traded sideways in Asia and at the start of the European session, but then as the US opened a rallied ensued with 10y UST falling from an earlier high of 2.22% to 2.166% where they currently sit.
The USD is softer against most currencies with JPY (and European currencies top of the leader board (+/-0.50%). NZD has been the underperformer, down 0.67% and the rise in oil prices has helped CAD perform (+0.12%), despite initial losses following Trump’s threat to end NAFTA.
The Euro is back trading above the 1.18 mark, boosted by a positive round of European PMIs. The German manufacturing PMI printed at an impressive 59.4 and against expectations of a small fall. Meanwhile, the Euro-Zone Manufacturing PMI came in at 55.8 this month from 55.7 in July. The data also helped the EUR/GBP cross make a break above the 0.92 mark, barring a brief stint in July, the last time the cross traded above 0.92 was back in April 2009. Positive economic news in Europe as well as the prospect of ECB tapering has boosted the Euro, while sluggish economic readings and Brexit as well as political uncertainty are weighing on the pound. This picture is unlikely to change any time soon.
At a first glance NZD underperformance could be linked to the government Pre-election Economic and Fiscal Update which showed surpluses slightly lower in the outer years. While it is true the move lower in NZD started around the time the report was released, fiscal reports rarely elicit a market reaction. Instead my sense is that NZD weakness is probably linked to the unwinding of extremely net long speculative positions.
Meanwhile the AUD is little changed at 0.7904 after trading in a 30 pips range over the past 24 hours. Risk aversion weighed on the AUD, but solid commodity performance was an offsetting force.
Oil prices got a boosts from an EIA report that showed last week crude stockpiles fell for an eighth week (-3.3m barrels) and motor fuel inventories dropped by 1.22m barrels. Both WTI and Brent closed the session over 1% stronger. Meanwhile the iron ore price is down 2.3%, largely reflecting yesterday’s decline in the active futures contract. Looking at the contract today, after initially trading lower, it stabilised later in the session to end the day up 0.52%.
Speaking in Midland, Fed Kaplan reiterated his preference to be patient on Fed Funds Rate, noting that technological breakthroughs are preventing the tight labour market from triggering inflation.
This morning on the Economic Front we have UK GDP and Index of Services at 9.30 am. This is followed at 1.30 pm by US Weekly Jobless Claims. Finally we have Existing Home Sales and the Kansas City Fed Manufacturing Activity Index at 3.00 pm and 4.00 pm respectively.
September S&P 500
So far the bounce in the S&P from Monday’s 2415.75 low print to yesterday’s 2454.50 high has been relatively tame, lasting a day and a half so far. The S&P has retraced 65% of the preceding decline from the August 16 2488.50 all-time high. Yesterday the S&P was heavy all day with the market trading the whole of my 2441/2447 buy range with an 2438.75 low print before rallying to a 2447.50 rebound high. As I was having a good day and wanted to protect my gains I emailed my Platinum Members to exit any long position for a breakeven. Subsequently I emailed my Platinum Members to re-buy the S&P on any further dip lower to 2437 and this level was filled after the re-open of the Futures Market last night. With the S&P now trading at 2440 as I post this commentary I have now taken my profit here and I am now flat. With Fed Chair Janet Yellen speaking at Jackson Hole tomorrow I would expect the market to trade in a narrow to firm range ahead of this key speech. With the Dow, S&P and NASAQ all down for the month I would expect a lot of volatility surrounding her speech. Today I will again look to buy the S&P on any dip lower to 2429/2435 with a 2424 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2413/2419 with a 2408 stop. I still do not want to be short the S&P at this time.
EUR/USD
I am still flat the Euro which was firm all day. I thought the Euro may have fallen on the back of Dragi speaking yesterday morning but instead the Euro rose and I am still flat. Today I will raise my buy level slightly to 1.1690/1.1730 with a 1.1660 stop. I still do not want to be short the Euro at this time preferring to buy the Dollar Index on dips.
September Dollar Index
The Dollar traded lower to my 93.20 buy level shortly after the US Markets opened yesterday morning. We only got a small rally mainly due to the upward movement in the Euro. As a result I again emailed my Platinum Members to exit any long position for a small gain at 93.30 and I am still flat. Today I will again look to buy the Dollar on any dip lower to 92.70/93.05 with a 92.40 stop.
September DAX
It took a while but finally the DAX traded lower to my 12160 buy level before rebounding to a 12194 high and this rally higher enabled me to cover this position at my revised 12185 T/P level and I am now flat. The next 36 hours will be critical for the DAX as we have both Yellen and Dragi to look forward tomorrow. Today I will again look to buy the DAX on any dip lower to 12030/12090 with an 11980 stop. Despite the weakness of the market I still do not want to be short the market at this time.
September FTSE
Unfortunately the FTSE just missed my 7335 buy level after the European Markets opened yesterday morning and I am still flat. With Sterling at its weakest level against the Euro since 2009 it is very difficult to be short the market. Today I will raise my buy level slightly to 7310/7340 with a 7280 higher stop.
Dow Rolling Contract
My Dow plan also worked well with the market trading lower to my 21810 buy level before bouncing a couple of times to 21862. As so many of my positions hit yesterday I covered my long position at my revised 21832 T/P level and I am still flat. With Yellen speaking tomorrow the Dow is still a buy on dips ahead of her speech and today I will again look to buy the market on any dip lower to 21680/21740 with a 21635 stop.
September BUND
There is no end in sight to the Bund’s rally. Despite stronger economic growth the Bund rallies which makes no sense but as Keynes famously said ‘’markets remain illogical longer than I can remain solvent’’ is apt here. Yesterday after the Bund traded higher to my initial sell level I emailed my Platinum Members to exit any short position at 164.65 and I am still flat. Today I will again look to sell the Bund on any further rally to 164.95/165.25 with a 165.50 tight stop.
Gold Rolling Contract
No change as I will leave my buy level unchanged from 1268/1275 with a 1263 stop. Remember a break and close over 1300 is bullish and should see an acceleration higher in Gold.
Silver Rolling Contract
Silver continues to underperform Gold which is a worry and is one of the main reasons why I am not chasing Silver higher at this time. Remember six weeks ago Silver was trading at 15.17, so has had a huge rally since this low. Today I will leave my buy level unchanged from 16.55/16.85 with the same 16.35 tight stop.
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