It’s 100 years ago today that Albert Einstein formally presented the results of his eight year study into gravity – the general theory of relativity. Good on you Albert.
Meanwhile in the marginally less complex world of financial markets, the relativities of Fed and ECB policy dispositions remain a key driver. EUR/USD has made a new post-March 2015 low at 1.0566 and the 2yr benchmark German bond yields a new record low of -0.424% (down some 4bps). The proximate cause has been a Reuters report suggesting that the ECB is looking at a tiered system for the negative Deposit Rate(s) to be charged to banks posting excess cash at the Central Bank. This is interpreted as implying that that the headline Deposit Rate could be cut beyond -0.3% (from – 0.2% currently) and which is the current consensus view.
The dollar, as measured by the Euro-centric DXY index (the Euro has a 57.6% weight) has spent time back above 100.0 for the first time since March, though has since slipped back to be only 0.3% higher on the day. We’ve had a cart load of US economic data, concertinaed into Wednesday ahead of today’s Thanksgiving holiday, and which while mixed has overall proved Dollar supportive and prevented US Bond Yields from being pulled down by the across-the-curve declines in Eurozone yields.
US stock meanwhile closed slightly positive on the day. The data highlights have included some disappointment that October Personal Spending – in both real and nominal terms – fell short of the 0.2% expected outcomes at 0.1% for both, with the PCE deflators (whether headline or core) also 1/10% lower than expected (headline is just 0.2% y/y, and core +1.3% – the latter unchanged from September). The final University of Michigan consumer Sentiment Index also disappointed, slipping to 91.3 from the 93.1 preliminary. In contrast, October Durable Goods Orders posted a strong 3% gain (+1.4% expected) with Capital Goods Orders excluding the lumpy defence and aircraft sub-components +1.3% against +0.2% expected. October New Home Sales meanwhile jumped 10.7% on the month, stronger than expected but only because of a big downward revision to September (now -12.9%). The level of new homes sales 495k was just beneath the 500k consensus. Markit’s version of US services PMI rose to 56.5 from 54.8 – better than the 55.1 expected, while Jobless Claims fell to 260k from 272k.
As for the AUD, it failed to hold its Sydney-day gains overnight, losing about 30 points to 0.7253. Yesterday’s local gains came in part on suspicions of M&A support for the AUD following news that the winning bidder for the NSW Tran Grid power sell-off has a 65% offshore component. Iron ore prices meanwhile – and where Tuesday’s plunge to new 9- year lows went ignored by the FX market – have stabilised overnight around $44.0 .
With the US Markets closed today and only open for a half day tomorrow the only economic data due this morning is Euro-Zone M3 Money Supply at 9.00 am and the German GIK Consumer Confidence at 12.00 pm.
December S&P 500
Despite the platter of US economic data yesterday the S&P traded in a very narrow range with most US Trading desks closing early for the Thanksgiving Holiday on what is the busiest travel day of the year in America. I am still flat the S&P and with the Futures Markets only open until 4.30 pm I would expect trading to be again quiet. Today I will raise my buy level to 2079/2084 with a 2074 stop. The S&P has huge resistance at the 2015 high of 2130 and a break and close over this level could lead to a run higher to the major resistance at 2200/2240 before we finally see an end to this seven year bull market. As I mentioned in yesterday’s commentary with the level of Central Bank buying going on in the stock markets it is very difficult to be short at this time and for this reason I will have no sell level today.
EUR/USD
Unfortunately just after I posted we got the rumours of the ECB doing more QE at next week’s now key ECB Meeting and after the Euro traded lower to my average buy level at 1.0625 I was stopped out of this trade near the lows of the day at 1.0585 and I am now flat. I still believe that no Central Bank wants a strong currency at this time and I would include the Fed in this scenario as the strong Dollar is putting pressure on the earnings of the major US Stocks. The retailer Macy’s reported weaker than expected earnings last week and their share got hit for nearly 25% on this news as they cited the strong Dollar has a major headwind for them as European shoppers are not spending money due to the unfavourable exchange rate. There is no worse felling in getting stopped out of a trade when not long after the market bounces back to your original buy/sell level as happened with the Euro yesterday. Today I will again be a small buyer on any dip lower to 1.0540/1.0570 with a 1.0515 stop. I still do not want to be short the Euro at this time.
December Dollar Index
Soon after I was stopped out of my long Euro position the Dollar traded higher to my 100.10 sell level. I am still short and I will leave my stop the same at 100.45.
December DAX
My DAX plan did not work out yesterday as the 11050/11100 resistance level was broken easily on the mention of more QE. I went short at an average rate of 11080 only to be very quickly stopped out of this position at 11135 and I am now flat. The previous resistance above should now act as strong support and today I will be a small buyer on any dip lower to 11100/11160 with a 11050 stop. The price action continues to tell me not to be short the DAX at this time and I unfortunately broke that rule yesterday.
December FTSE
I am still flat the FTSE and with the DAX again soaring this morning I am going to raise my sell level to 6400/6430 with a 6465 stop which is just above both the 100 and 200 Day Moving Averages.
Dow Rolling Contract
Despite the positive price action I still cannot bring myself to buy the Dow. With the cash market closed today my only interest in selling the Dow is on a further rally higher to 17940/17990 with a 18030 stop.
December BUND
The mention of QE again has given German Bond Yields another boost as mentioned in my economic commentary above where the two year Bund is trading at an incredible -43 basis points. As a result of this the BUND has hit the top of my sell level at 158.30. I am still short and today I will raise my stop on this position to 158.70. If I am stopped out of this trade I will be a more aggressive seller in front of 159.00 with a 159.30 stop.
Gold Rolling Contract
I am glad that I reduced my buy level in Gold yesterday with the market hitting my 1069 buy level. I am still long and today I will raise my stop on this position to a tight 1062.
Silver Rolling Contract
No change as I am still long at 14.03 with the same 13.65 stop. Silver looks bid to me and in my opinion it is only a matter of time before Silver trades higher. Remember in May 2011 Silver traded over $51 so the potential is here for a huge move higher.
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