Everything is rosy nicely captures the key upbeat message from Fed Chair Yellen appearance before Congress alongside the better than expected US and EU economic data. Higher German inflation looks to have been the trigger for an uplift in core Global Bond Yields while the improvement in US Tax reform prospects, as the Senate prepares to vote on its Tax bill, has triggered a big rotation away from US IT shares into financial and telcos. Price action in currencies has been relatively muted although Sterling is the outstanding outperformer and in commodities, oil prices are having a volatile session ahead of OPEC’s meeting later today.
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For anyone following my Platinum Service it lost 10 points yesterday and is now ahead by 977 points for November having made 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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So it all started in Europe and for a change the big price action was in Bond Yields rather than currencies. Economic confidence amongst businesses and consumers in the Euro-area rose as expected, taking it to a 17-year high, but the big surprise came from Germany’s CPI figures with the preliminary reading for November printing at 1.8%yoy against expectations of a 0.2% rise to 1.7%. The data triggered a sell-off in Bund Yields with the 10y rate climbing from just under 0.36% to 0.39% and then settling at 0.385%. Half an hour later, the revised Q3 USD GDP data came in better than expected (3.3% vs 3.2% exp.) and later on Pending Home Sales were much stronger than expected.
Although 10 year US Treasury yields were already rising ahead of the German CPI print, the move accelerated post the data and then consolidated after the US data releases. Fed Chair Yellen upbeat message (albeit not new) did not do any harm to the move. Yellen delivered a positive assessment to the economic outlook, noting that wage gains and inflation remain tame, but she forecast strengthening ahead, she then signalled that further gradual rises in the Fed Funds Rate should be expected, albeit data dependent, of course.
The net effect from the above has seen the US Treasury yield curve bear steepened with 2 year rates up 2bps to 1.768%, 10Y rates up 4.8bps to 2.377% and the 30y rate up 6.1bps to 2.82%. Notably 10y UST yields traded to a high of 2.3935%, so the 2.40% mark remains a big barrier for a move higher in yield.
Despite the rise in EU Bond Yields, the Euro is only slightly stronger against the USD, currently at 1.1858, after trading in a range of 1.1818- 1.1883.Indeed, Sterling is the big outperformer boosted by the prospect of an extension deal, amid positive signs of a compromise on the Irish border ahead of a key meeting next week. After trading in a steady upward trend overnight the pair currently trades 1.3455, up 0.63% over the past 24hrs.
So in index terms the USD has had a mixed night. DXY is -0.04% weighed by GBP and EUR strength, but BBDX is +0.06% reflecting offsetting USD strength against other G10 pairs. AUD in particular continues to trade with a soft tone, the pair is down 0.22% over the past 24hrs, it currently trades at 0.7578, but it traded to an overnight low of 0.7552. AU-US rate differentials have continued to narrow, the 10y AU US spread is now at 14.5bps and with 10y UST knocking on the 2.40% mark, the rates differential story is likely to remain a downward force for the AUD.
Lastly and ahead of the OPEC meeting today, oil prices have had a volatile session, Brent briefly traded above the $64 mark, then it collapsed to $62.6 and now it appears to have settled just above the $63 mark. A compromise on the extension period for production cuts remains a hot topic.
This morning on the Economic Front we have German Unemployment at 8.55 am and this is followed at 10.00 am by the Euro-Zone Unemployment Rate and CPI. At 1.30 pm we have the US Weekly Jobless Claims, Personal Income/Spending and most importantly the PCE Deflator. Finally we have the Chicago Purchasing Managers Survey at 2.45 pm.
Later at 6.00 pm the Fed’s Kaplan speaks in Dallas.
December S&P 500
Volatility continued to pick up yesterday as the S&P which made its 58th new all-time high for 2017 only to reverse course after the NASDAQ tanked. Frustratingly the S&P missed my 2635 sell level with a 2634.25 high print before falling 15 Handles and I am still flat. Today I will continue to be a buyer on any dip lower to 2600/2608 with a 2594 stop. Given how close the market came to yesterday’s sell level I will now raise my sell level today to 2636/2646 with a 2653 stop. With month end today and the beginning of a new month tomorrow we may well see some buying as Fund managers tend to put monies to work over this time frame.
EUR/USD
My Euro plan worked well with the market trading lower to my 1.1825 buy level before having a nice rally. Unfortunately I covered my position too early at my revised 1.1834 T/P level and I am now flat. Today I will again look to buy the Euro on any dip lower to 1.1775/1.1815 with a 1.1735 wider stop. I still do not want to be short the Euro at this time.
December Dollar Index
No change as I am still a buyer on any dip lower to 92.35.92.70 with the same 92.05 stop. The 92.00/92.50 is strong support and I would expect the Dollar to rally on any initial test of this area before subsequently having a more meaningful sell-off.
December DAX
The DAX which was strong all morning suddenly reversed course in an aggressive manner after the NASDAQ got hit. With so many of my positions hitting at the same time I waited to buy the DAX which I did at 13060 before emailing my Platinum Members to exit at this price level and I am still flat. The DAX has strong support from 12890/12950 and today I will again look to buy the market on any dip to this level with a tight 12840 stop. Despite yesterday’s reversal I still do not want to be short the market at this time.
December FTSE
My FTSE plan did not work out as the market was heavy all day hampered yet again by the rise in Cable. Initially the FTSE came within two points of my buy level before rallying strongly only to follow both the NASDAQ and DAX lower in the afternoon with the market trading the whole of my 7380/7410 buy range. This had me long at an average rate of 7395. Subsequently I emailed my Platinum Members to exit any long position for a small loss at 7388 and I am now flat. Today I will again be a buyer on any dip lower to 7290/7325 with a 7260 stop.
Dow Rolling Contract
Unfortunately the Dow came close to my 23980 sell level before falling 100 points and I am still flat. Yesterday’s new high for the Dow occurred with a Negative/ Advance Decline Ratio of .93:1 and a NYSE Trading Index of 0.58. This combination is a bearish sign. The Trading Index is a measure of how much volume it takes to move rising stocks versus falling stocks on the NYSE. Yesterday’s low Trading Index means that it has taken a lot of volume to make rising stocks go up versus making falling stocks go down. It indicates that buyers of rising shares are expending more money to get the same result that sellers of declining stocks are getting. With a low Trading Index and a negative A/D ratio it usually means buying power is being exhausted. It is worth noting that the strongest market signals are when this condition exists for a period of time. Just before I posted the Dow traded higher to my 23980 sell level and given the fact it is month end I have now cut this short position here at 23975 and I am now flat.Today I will be a seller on any further rally higher to 24030/24090 with a 24150 stop. Given how overbought the Dow is trading I still do not want to be long the market at this time.
December NASDAQ
The NASDAQ was heavy all day yesterday before getting hit hard shortly after the US Markets opened with the market trading the whole of my 6310/6355 buy range for an average long position at 6332. Yesterday’s reversal just missed being a significant Downside Key Day Reversal by a couple of points. As I was not comfortable in being long I emailed my Platinum Members to exit any long position for a small loss at 6315 and I am now flat. The NASDAQ has key support at 6230 and today I will be a small buyer on any further dip lower to 6190/6235 with a 6155 stop. In light of yesterday’s reversal I will now lower my sell level to 6390/6430 with a 6480 wider stop.
December BUND
This morning the Bund is trading below key support having unfortunately just missing my sell ranges over the past week and I am still flat. If we close below 162.50 this evening it will be a sell signal. Today I will now lower my sell level to 162.85/163.25 with a 163.55 stop.
Gold Rolling Contract
I am still flat Gold which continues to trade sideways as the market could nt break the key 1300/1310 resistance level. As I am long Silver I will now lower my Gold buy level to 1259/1266 with a 1252 stop.
Silver Rolling Contract
Silver traded lower to my second buy level at 16.70 and I am now long at an average rate of 16.87. The market is opening lower this morning putting my 16.40 stop at risk. If I am stopped out of this position I will be a more aggressive buyer on any further dip lower to 15.80/16.25 with a 15.45 stop.
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