The UK Brexit letter has finally been delivered, but market reaction has been fairly muted. US equity Indices have traded in and out of positive territory and main European indices closed the day up between 0.29% and 0.45%. The US Dollar is stronger against European currencies amid a report noting the ECB was wary of changing its policy message before June and commodity linked currencies are the outperformers with AUD and CAD at the top of the leader board, aided by the rise in oil prices and steadiness in iron ore.
To mark my 1300th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 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 58 points yesterday and is now ahead by 1210 points for March, having made 1481 points in February, 1734 in January, 1351 in December, 1971 in November and 1582 in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1800 points.
The UK letter to Europe struck a conciliatory tone, but there was a notable underlying warning that EU security would be “weakened” if Britain left the block without a new comprehensive deal with Brussels. EU Council president, Donald Tusk, decided to focus on the letter’s positive tone and even showed a bit of sense of humour noting that “After nine months, the UK has delivered”. PM May addressed the House of Commons and called for early technical talks on a “bold and ambitious free trade agreement”. Chancellor Merkel on the other hand, took a hard line, saying Britain’s future relationship with the EU could be discussed only after a divorce settlement is reached which Europe believes is somewhere in the region of €60bn . So it is still early days and negotiations still have the potential to get messy. Recent history also suggests a deal could take several years, Canada’s free trade agreement took 5 years and then the ratification of the deal took another 2. The UK has started its divorce process.
US equities are still struggling to get back into a positive trend. On Tuesday financials were the winners while yesterday they were at the bottom of the pile. Meanwhile the energy sector is leading the way, closing 1.25% higher, helped along by the move higher in oil prices. After yesterday’ reports of disruptions in Libya’s oil output, oil prices rose again following news that US crude stocks rose by less than expected. WTI is closed 2.2% higher with Brent not far behind with a 1.9% gain.
The move higher in oil, the steadiness in bulk commodities and the improvement in risk appetite has been a nice positive combo for the AUD. After trading to a low of 0.7588 on Tuesday, the AUD has been on a steady rise and is currently trading at 0.7660. My AUD model is currently suggesting fair value is at 0.776, so on this measure the AUD still has room to climb a little bit higher.
Sterling was under pressure yesterday afternoon following the announcement of Brexit eventually trading to a low of 1.2377 just after the Brexit letter was delivered. That said the currency has been rising since midnight and now it is essentially back to where it was yesterday, currently trading at 1.2439. A Reuters report noted that the ECB wants to reassure markets that that its extraordinary support isn’t yet ending and that its tweak in its policy language was over- interpreted. The news saw the EUR dropped from 1.0790 to an overnight low of 1.0741 and now it is trading at 1.0760. The report also triggered a rally in bonds with German Bunds leading the way. 10y Bunds ended the day 4.5bps lower at 0.339% and after trading to an afternoon high of 2.425%, 10y UST are down 5bps and currently trading at 2.378%.
US Pending Home Sales jumped by 5.5% in February, well above the 2.5% expected by consensus, but the data was largely ignored by the market. Meanwhile Fed Williams said that he “would not rule out more than three increases total for this year.” While Fed Member Rosenberg suggested that that four hikes in 2017 may be needed to guard against economic overheating.
This morning on the economic front we have Euro-Zone Business Climate Indicator at 10.00 am and this is followed at 1.00 pm by German CPI. AT 1.30 pm we have US GDP and the Weekly Jobless Claims. Finally at 2.45 pm we have the Bloomberg Consumer Comfort Index.
This afternoon we have an abundance of Fed speakers. Fed Mester, Kaplan, Williams and Dudley are all in the roster, but given so many of them have already spoken this week, it is difficult to conceive that we are going to learn anything new. For choice Fed Dudley’s speech could be interesting as he will be talking on Financial Conditions and Monetary Policy.
June S&P 500
Yesterday the S&P missed my 2346 buy level with a 2348.50 low print before trading to an overnight high at 2362.75, which just missed my 2364 sell level and I am still flat on a day when the McClellan Oscillator improved to close with +80 print. The S&P has strong resistance at 2360 but to me it is only a matter of time before we trade higher to test the next major resistance from 2375/2385. Today I will move my buy level higher to 2346/2352 with a 2341 stop. If I am taken long and subsequently stopped out of this trade I will be a more aggressive buyer on any further dip lower to 2326/2332 with a 2321 stop. Given the fact that we have Month and Quarter End tomorrow I will now raise my sell level to 2373/2379 with a 2384 stop.
EUR/USD
The Euro traded most of my buy range yesterday which put me long at an average rate of 1.0751. As I wanted to bank some points for yesterday’s trading session I emailed my Platinum Members to exit this trade at 1.0765 and I am still flat. Yesterday’s low at 1.0740 is now key support while Monday’s 1.0906 high print will be strong resistance. The Euro was due a sell-off given its overbought condition and today I will again look to buy the Euro on any dip lower to 1.0705/1.0735 with a 1.0680 tight stop.
June Dollar Index
I am still flat the Dollar which is continuing to rally as expected given how oversold the Dollar was trading when it broke 99.00 on Monday. Today I will now raise my buy level to 99.25/99.65 with a 98.85 stop. I still do not want to be short the Dollar at this time.
June DAX
Despite the DAX being severely overbought it is very hard to be short the market for more than a few hours before buying returns. As I mentioned yesterday, the DAX has very strong resistance from 12300/12350 and today I will again be a seller from 12310/12370 with a 12420 stop. I will also raise my buy level slightly to 12100/12160 with a 12040 stop.
June FTSE
My FTSE plan worked well with the market trading the whole of yesterday’s buy range which put me long at an average rate of 7250. In anticipation of getting filled at my lower Dow and S&P buy levels I covered my long FTSE position too early at 7262 and I am now flat. The subsequent sell off in Sterling put a bid to the FTSE with the market continuing to rally on the open this morning in London. There is no doubt ”Brexit” is being viewed as good for the UK and I certainly would not disagree with that idea especially with the likelihood that ”Brexit”will probably take closer to five years before the divorce is finally settled. Today I will now look to buy the FTSE on any dip lower to 7255/7290 with a 7225 tight stop which is just below yesterday’s low print. I still do not want to be short the market at this time.
Dow Rolling Contract
My Dow plan worked well with the Dow hitting my 20645 buy level before rebounding to an overnight high at 20703. As I did not want to have a position overnight I covered this position at my revised 20665 T/P level and I am still flat. While the S&P closed higher yesterday the Dow closed lower as it was weighed down by the bank stocks as mentioned in my economic commentary above. Today I will again look to buy the Dow on any dip lower to 20550/20610 with a 20500 stop. As tomorrow is Month and Quarter End I will now raise my sell level slightly to 20775/20835 with a 20885 stop.
June BUND
A Reuters Report that the ECB wants to reassure markets that its support for QE is not ending saw the Bunds rally over 100 points shortly after I posted yesterday morning. Thankfully we had no sell levels in the Bund and today will be key for this market with the release of German CPI at 1.00 pm. If we see another pickup in inflation then the Bund will get hit. Today I will move my buy level higher to 160.45/160.85 with a 160.15 stop. The price action is still telling me not to be short the market at this time.
Gold Rolling Contract
Gold traded in a narrower range yesterday and I am still flat. Today I will again leave my buy level unchanged from 1232/1239 with the same 1227 stop.
Silver Rolling Contract
Silver traded at my latest long 18.10 buy level for one hour after I posted yesterday morning which gave everyone an opportunity to buy the market at this price level. Subsequently Silver rallied to a high at 18.27 and I used this rally to cover my long position at my revised 18.22 T/P level and I am now flat. Silver’s winning streak extended to nine days with yesterday’s move higher. Silver needs to break and close over its 18.58 high from February 24 before we possibly see the market eventually hit its July 3 high at 21.03. Today I will again look to buy the market on any dip lower to 17.80/18.10 with the same 17.55 stop.
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