After a sleepy start to the week markets have awakened over the past 24hrs. US equities are softer amid disappointing earnings results and Republican tensions threatening the prospects for tax reform. US Data has helped push US Treasury Yields higher and Interest Rate hike expectations have weighing on the AUD and CAD while Sterling has outperformed. The AUD is down just over 1% over the past 24 hrs after yesterday’s weaker than expected Q3 CPI print (0.6% headline vs. 0.8% estimate and 0.4%/0.3% for the trimmed mean/weighted median measures vs a pair of 0.5% expected). The AUD reached a 2 year and four month high of 0.8125 early in September amid a softer USD and buoyant commodity prices. Since then, however, the AUD has come under pressure following a resurgence in US Dollar strength, softness in key commodity exports (in particular iron ore, but also coal and gold) and more recently a pullback in RBA rate hike expectations which intensified yesterday following a softer than expected Q3 CPI.
To mark my 1450th issue of Tradernoble Daily Commentary I am offering a special 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 12 points yesterday and is now ahead by 576 points for October, having made 447 points in September, 1560 in August, 1096 in July, 1023 in June, 1076 in May, 1375 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 1600 points.
At the start of the week the market was eyeing the probability of a second RBA hike at just under 40% at the November meeting next year, now the market is only pricing one hike in a year’s time. The AUD is currently trading at just under the 77c mark and fair value is seen at just under 78c, so the pair is well inside its 2.6c fair value range. Also this means that despite the recent decline, the AUD is not stretched based on fundamentals suggesting there is still downside risk for the currency. Focus now is on key technical support levels with the trend line support from 2016 and early 2017 peaks and the 200dma suggesting a break below 0.7690 could well see the AUD trading with a 0.75 handle. The domestic story is likely to take a back seat after the CPI release, so near term further AUD weakness will likely depend on how the USD performs and a break above the 94 mark in Dollar Index will be crucial in that regard.
Moving on to other currencies, the Canadian Dollar was also the other underperformer down 1% and currently trading at 1.2804, its highest level since early July. Yesterday the BoC was unchanged as expected, but the sentence that it will be ‘cautious’ with future rate increases weighed on the Canadian Dollar as the market pushed out the expectations of further BoC hikes.
Meanwhile Sterling has been the winner in the past 24 hours, up 0.38% and currently trading at 1.3254. UK Q3 GDP growth was 0.1% points higher than expected (0.4%qoq vs. 0.3 exp.), but that was enough to cement in expectations that the Bank of England would hike rates next month. 10y UK gilts jumped up 5bps to an 8-month high of 1.40% and now a November BoE hike is priced at 90% up from 80% yesterday morning.
US Treasury Yields are currently trading at 2.43%, about 2bps higher relative to where I marked prices early yesterday morning boosted by the stronger than expected UK GDP and US Durable Goods and Home Sales data.
This morning on the Economic Front we have German GFK Consumer Confidence at 7.00 am. This is followed by UK CBI Retailing/Total Distributive Reported Sales at 11.00 am. At 12.45 we have the ECB Rate decision. Today is all about the ECB announcing its tapering plan for its bond buying programme, but tensions between Spain and Cataluña could also be important for market amid the senate vote on triggering Article 155 of the constitution. As for the ECB, expectations are for the Bank to announce an extension to its Asset Purchases programme (APP), but at a slower buying pace relative to the current €60bn p/m. The big uncertainty is not just about how much slower the buying run rate is going to be, but also for how much longer the APP will run for. While Euro strength and higher EU Bond Yields should be expected as the ECB slowly removes the stimulatory punchbowl, the 13% rise in the EUR so far this year has undoubtedly ruffled a few feathers within the Bank, particularly given its impact on the inflation outlook. A week or so ago the market was looking for the programme to run for 6 to 9 month at a pace between €40 or €30bn p/m. But based on recent ECB stories my sense is that the Bank will aim to strike a dovish tapering strategy, stressing the programme could run for longer if needed while also reiterating that the Deposit and Repo Rate will not rise until well after QE ends. I think the EUR/USD ought to hold a 1.1675-1.1875 range near-term, ultimately however tapering is tapering, therefore my bias is still for the EUR to eventually head higher, but while further forays to 1.20 or so may well be seen between now and the end of 2017, I am not forecasting a more sustained move above 1.20 until 2018.
At 1.30 pm we have the Dragi press conference and US Weekly Jobless Claims. Finally we have Pending Home Sales and the Kansas City Fed Manufacturing Activity Index at 3.00 pm and 4.00 pm respectively.
December S&P 500
I had the correct view yesterday but unfortunately my stop was too tight which was extremely frustrating. To recap after the S&P hit my first buy level at 2557 I emailed my Platinum Members to only add to this position at 2550, after getting hit at this level I was stopped out of my now average 2553.50 position at 2545 before the market rebounded to close near the high of the day at 2558. If it was not for the S&P we would had a fantastic trading session yesterday. It is now obvious that it is extremely difficult to be short the market and just how important the 2545 support level is. Given the rebound when yet again the bears were getting excited about a meaningful sell-off, the buyers returned with a vengeance. For those members who I used to lecture in IG Dublin before they closed their Dublin office recently and were at those meetings when I first recommended a small share called Lighthpath Technologies at a price of $1.70 in January, the share exploded on huge volume yesterday rising 15% to close at $3.40. If you are still long I would cover 25% of your exposure here and leave the rest as I still believe that this company will trade over $10 over the coming months. Today for the S&P I have to respect yesterday’s rebound and the hardest thing to do as a trader is to re-buy a market after one is stopped out of a position. Thus my buy level will be from 2546/2553 with a wider 2540 stop. I still do not want to be short the S&P at this time.
EUR/USD
Just like the US stock market it is extremely difficult to be short the Euro especially as we head into the Dragi press conference at 1.30 pm. I am still flat the Euro and will stay flat until he finishes his speech. Today I will only raise my buy level slightly to 1.1690/1.1735 with a 1.1655 wider stop.
December Dollar Index
No change as I am still a buyer on any dip lower to 92.80/93.15 with a 92.55 stop. I still do not want to be short the Dollar at this time.
December DAX
My DAX plan worked well with the market eventually trading lower to my 12910 buy level. As I wanted to be flat ahead of today’s ECB Meeting I covered this long position at my revised 12932 T/P level before the market subsequently rallied to a 12970 rebound high and I am still flat. Today I will again look to buy the DAX on any dip lower to 12875/12920 with a 12840 tight stop. I still do not want to be short the market at this time.
December FTSE
The FTSE traded lower to my initial 7440 buy level before hitting a low print at 7397. As I was long so many markets at the same time I did not add into this position. Today I will now lower my T/P level on this position to 7455. If I manage to T/P at this price I will again look to buy the FTSE on any subsequent dip lower to 7380/7410 with a 7350 stop.
Dow Rolling Contract
As I was already long both the S&P and FTSE, I waited to buy the Dow which I did at 23430 before emailing my Platinum Members to exit this position at my revised 23450 T/P level and I am now flat. The good thing about yesterday is that the only position to get stopped out was my S&P and if you held on or added into any of the other Indices then it all worked well for you. I am still flat the Dow and is clear from yesterday’s turnaround that the bulls are not going to give up easily. Today I will again be a buyer of the Dow on any further dip lower to 23210/23290 with a 23160 stop. This is still a bull market and I do not want to be short the Dow at this time.
December NASDAQ
My NASDAQ plan worked well with the market trading lower to my 6015 buy level before rallying and this move higher enabled me to cover this position at my revised 6035 T/P level and I am now flat. Today I will again look to buy the NASDAQ on any dip lower to 5995/6035 with a 5960 stop.
December BUND
My Bund plan also worked well with the Bund trading lower to my 160.90 buy level before rallying to my revised 161.05 T/P level and I am now flat. I will stay flat until we get the Dragi press conference out of the way. If the Bund subsequently trades lower I will again look to buy the market from 160.30/160.70 with a 159.95 stop.
Gold Rolling Contract
Gold just missed my 1267 buy level before rallying after the equity markets sold off and I am still flat. Today I will continue to be a buyer on any dip lower to 1261/1268 with a 1255 stop.
Silver Rolling Contract
My Silver plan worked well with the market trading lower to my 16.80 buy level before rallying to my 17.00 tight T/P level and I am still flat. Today I will again be a buyer on any dip lower to 16.55/16.90 with a 16.30 stop and a 17.05 T/P level if executed.
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