Difficult huh? You thought you knew which direction this was all going? After big moves there can often be big reversals. It doesn’t mean that the underlying issue is resolved but rather is often a factor of positioning, liquidity and uncertainty. We have a jumble of all three going on. China’s equities ended down, helping drive down European equities, and European EM currencies, but the US had a very strong upswing. That could be because markets thought that the Fed wasn’t going to hike, except Bond Yields were higher. Growth pricing wasn’t exactly surging as Oil prices and Iron ore were lower.
For anybody following my new Platinum Service it made 210 points and is now ahead by 1500 points for August.
I have been asked to do a live trading/training day over the Non-Farm Payrolls next week on September 4th in the Royal Irish Yacht Club Dun Laoghaire from 11.00 am to 5.00 pm and if anybody is interested in attending, please contact Graham on grahammulhern@yahoo.com
And despite the Fed pricing change (less priced for September), the US Dollar was stronger, with the EUR and JPY under pressure in particular. The lack of consistency points to the positioning, liquidity and uncertainty described above. What we do know is that the Fed is less certain of its hiking cycle now, and the ECB are wary about meeting its inflation target and are willing to do more QE. The difference in the currencies is that one is going to potentially do nothing but the other is going to potentially ease further. Cue the EUR decline. And the rollercoaster continues.
It will be interesting to see the developments next week as the traders return to their trading desks after their summer holidays and the Central Banks report. We have the unwinding of positions of the past few weeks, an increase in liquidity and more clarity on what the Central Banks are thinking.
After first allowing the Chinese currency to weaken and move to a more market orientated system there has been pressure on the CNY to weaken further. Be it driven by equity market weakness, concerns about domestic growth, a need for USDs or speculative pressures. The PBoC are trying to contain this weakness to some extent and the daily USD/CNY fix has been lower than many anticipated of late. There has also been direct intervention since the devaluation. The problem is that there are still capital controls and the PBoC are trying to implement independent monetary policy. Attempting to control the exchange rate, capital flows and monetary policy can prove problematic. That is perhaps behind the rising concerns about what is happening and why there is a degree of nervousness with regards to policy options. And what it means for the rest of the world. So while we may be confused on an intra-day basis, it remains a key factor in the weeks ahead.
Clearly the ECB and the Fed are watching. First up yesterday was the ECB’s Praet who noted that there was a downside risk in achieving their inflation target, and that they would act if needed to address this (ie more QE). The Fed’s Dudley followed this up with saying (in the Q and A) that the decision to begin to the normalisation process at the September meeting seems less compelling, but he noted it could become more compelling with additional information. So he doesn’t rule out a hiking cycle, but that the equity decline and the uncertainty surrounding China are factors they are watching. It makes it harder to suggest that they will have all the information that they need before mid-September. Markets seem to think so. On the upside, the Durable Goods Orders were pretty good, albeit very volatile.
This morning on the economic front we already had the release of German Import Prices which printed -0.7 versus -0.3 expected. At 9.00 am we have Euro-Zone Money Supply. At the same time the ECB’s Coeure will speak in Paris, and after Praet signalled yesterday that the ECB were concerned about inflation this will be watched with interest. A lack of concern would generate some volatility but a conformation of Praet’s worries would add to the EUR pressure but are less likely to generate the volatility seen yesterday. This is followed at 1.30 pm by US GDP, Personal Consumption and the Initial Jobless Claims. Finally we have Pending Home Sales and the Kansas Fed Manufacturing Index which will be released at 3.00 pm and 4.00 pm respectively.
September S&P 500
Yesterday was yet another wild trading session as the S&P having traded up to 1926 before the open then closed a lot of the ‘open Gap’ left by this action with a move lower to 1879 before running all the way up to close at 1940, before trading higher to 1950 overnight. The move higher enabled me go short at an average of 1943.I have covered this position at 1936 at 7.00 am this morning as outlined in a separate email to all my Platinum Members and I am now flat. The fact that we have month end coupled with noises coming out of the Fed that they will not hike next month has calmed markets for now. Today I will be a small buyer on any move lower to 1925/1934 with a 1917 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 1890 with an 1869 stop. As I mentioned yesterday morning the S&P really needs to break and close back above 1980 by the end of the month or else we could have put a major top in the market that lasts for more than a few months. We still have a large ‘Open Gap’ from last Monday which runs from 1953/1970 and we could easily fill this gap before trading lower. Today my only interest in selling this market is on a rally higher to 1965/1975 with a 1983 stop.
EUR/USD
The Euro plan worked well yesterday as shortly after lunch the Euro traded lower to my 1.1385 buy level before having a nice rally to 1.1440 which enabled me to cover this position at 1.1430 as outlined earlier to my Platinum Members and I am now flat. The Euro has now retraced almost 400 points of its 700 point move higher last week and today I will again be a small buyer on any further dip lower to 1.1270/1.1310 with a 1.1235 stop which is just below the now key support level at 1.1250. I still do not want to be short the Euro at this time.
September Dollar Index
Unfortunately I was too greedy with trying to buy the Dollar yesterday as this 92.50/93.20 area is major support and it will take a few tests of this area before we break through. Today I will look to sell the Dollar on any rally higher to 95.60/96.00 with a 96.30 stop.
September DAX
What can one say about the DAX as every day the moves just amaze me more and more. Thankfully we had no sell level in the DAX yesterday with the market now trading nearly 1000 points higher from its intra-day low at 9350 last Monday. The DAX has major resistance at 10580/10650 which is the level that we broke through last week. Over the few trading sessions I will look to go short in this area with a 10720 stop. For today I will be a small seller on any rally higher to 10350/10410 with a 10460 stop.
September FTSE
The FTSE just missed my 5920 buy level yesterday afternoon before following the other major Indices higher and I am still flat. Today I will look to go short from 6160/6200 with a 6230 stop.
Dow Rolling Contract
Unfortunately I covered my long 15850 position way too early at 15900 just after I posted yesterday morning and I am still flat. The Dow which reached a low at 15250 shortly after the meltdown at the US open last Monday is now trading at 16360 this morning which is incredible. We still have a gap left from last Friday’s close at 16470 and it would not surprise me that we close this gap before trading lower. For this reason I will be a small seller on any further rally higher to 16450/16520 with a 16580 stop.
September BUND
The BUND plan also worked well yesterday as the BUND had a nice sell-off shortly after I posted which enabled me to go long at my 153.70 buy level. Subsequently when the equity markets started to sell-off the BUND Had a nice rally which enabled me to cover this position at 154.15 as outlined earlier to my Platinum Members and I am now flat. Today I will again look to buy the market on any dip lower to 153.10/153.50 with a 152.80 stop.
Gold Rolling Contract
Finally Gold traded lower to my 1124 buy level yesterday afternoon. I am still long and today I will raise my stop slightly to 1116 which is just below yesterday’s low print.
Silver Rolling Contract
Silver also traded lower to my 14.10 buy level yesterday. I am still long and today I will raise my stop slightly to 13.80.
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