It has all been about the FOMC and weakness in the AUD over the past 24 hours. It was just words, the statement, from the FOMC last evening with the FOMC leaving the Fed Funds Rate unchanged at 0.75-1.00% and not changing their guidance on when they might begin to run down their balance sheet. There were no updated forecasts at this meeting. That comes next in at the June 15 meeting. While there was also no press conference from Chair Yellen, she will have the opportunity to spell out the Fed’s views on the economy when she speaks at Brown University on Friday. You would only expect a similar upbeat message from her tomorrow. The words from the Fed were not vague at all, leaving no doubts in the mind of the market that the Fed retains a positive outlook for the US economy and will press on with their gradual removal of policy accommodation.
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For anyone following my Platinum Service it made 31 points yesterday and is now ahead by 118 points for May, having made 1276 points in April, 1335 points in March, 1481 in February and 1734 in January. The previous seven months saw gains of 1351, 1971, 1582, 1142, 1782, 1682 and 2550 points respectively. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1750 points.
The clear message from the Statement is that the Fed remains upbeat on US economic prospects. They are looking through first quarter weakness, including the softness in consumer spending as “transitory”. The Statement highlighted the favourable backdrop for consumer spending even though it recognised that household spending had risen “only modestly”. The Fed of course like others is also aware that first quarter growth numbers have consistently low-balled over the past decade, only to rebound in the second quarter, the residual seasonality. The backdrop for consumers and the economy gets a meaty update tomorrow night from payrolls, both in terms of employment growth and hourly earnings that also feeds back into inflation expectations. The Fed Statement described job gains in recent months as having been solid on average and continued to describe the economic outlook as roughly balanced.
The USD has been stronger in the wake of the FOMC, stocks have been relatively steady and US Treasury yields higher. The market is now pricing in an 80% chance of a hike at the June 15 meeting (which has been and remains my own forecast). 40 bps is priced by the December 13 FOMC. The US 10 year Treasury yield sits this morning at 2.318%, up 3.8bps.
The US Dollar has made gains against all the majors. Sitting this morning with the largest hit is the AUD that’s off the best part of 1½% in the past 24 hours, having been sold down through London New York and the Asian session overnight, LME copper down 3½%. Iron ore however has been virtually steady, though it’s been a lighter week in China for holidays.
The AUD this morning sits back at 0.7405, the USD DXY index up 0.40%, while the Bloomberg Spot Dollar Index is up a similar 0.36%, testimony to the big dollar strength. Also helping the US$ was a stronger-than expected ISM Non-Manufacturing Index for April. It was 57.5, up from 55.2 (E: 55.8), most metrics higher (including new orders and prices paid), the employment component virtually steady.
Meanwhile, Eurozone Q1 GDP came in exactly on expectations at 0.5%/1.7% after 0.5/1.8% in Q4 with little market spin off. The big Macron-Le Pen TV debate was on late last night with Macron again deemed the winner despite no politically killing blows landed by either combatant.
This morning on the economic front we have German, Euro-Zone and Services/Composite PMI at 8.55 am, 9.00 am and 9.30 am respectively. Also due to be released at 9.30 am is Euro-Zone Retail Sales and UK Mortgage Approvals. The US will release Challenger Job Cuts at 12.30 pm and at 1.30 pm we have the Weekly Jobless Claims, Trade Balance and Factory Orders. Finally ECB President Dragi will speak at 4.30 pm in Lausanne, Switzerland.
June S&P 500
My S&P plan worked well yesterday with the market trading lower to my 2376 buy level before rallying following the FOMC Statement. As I had so many open positions at the time plus the fact that I wanted to be flat ahead of the Fed I covered this long position at 2379 and I am now flat. Another reason that I covered this position was the fact that I had a lower buy level in the Dow which unfortunately missed by 10 points. The S&P is working out as planned with the market expected to make a new all-time high before running into trouble later in the year. We still have this massive ‘’Open Gap’’ from last Monday week following the first round of the French Election from 2345/2366 and it is unusual that it has not been tested as yet. This may well happen tomorrow in the event of a weaker Non-Farm Payroll Report. Today I will again look to buy the S&P on any dip lower to 2375/2381 with a 2370 stop. Again in the unlikely event that the S&P sells off I will be an aggressive buyer from 2347/2353 with the same 2342 stop. My only interest in selling the S&P is still on a rally higher to 2404/2412 with the same 2818 wider stop.
Just before the New York close the Euro traded lower to my initial 1.0885 buy level. As I wanted to be flat ahead of this morning’s Daily Commentary I emailed my Platinum Members at 7.15 am to cut this position at 1.0897 and I am now flat. The Euro is weaker this morning on the back of the increased expectation that the Fed will hike rates next month plus the fact that Dragi is speaking later this afternoon. The Euro has strong support at 1.0850 and today I will again look to buy the market on any dip lower to 1.0825/1.0860 with a 1.0795 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 1.0730/1.0770 with a 1.0685 stop.
June Dollar Index
Unfortunately the Dollar just missed my 98.60 buy level with a 98.72 low print before rallying back above 99. There is no doubt there is massive support for the Dollar between 98.00/98.80 as a break and close below 98.00 is very bearish with a target price of 95.00. Today in light of this strong support I will now raise my buy level to 98.40/98.80 with a 98.10 stop.
Following the FOMC Statement last evening I emailed my Platinum Members to cancel any DAX order as I did not want to have a short position on board ahead of the close. As it turned out the DAX only hit yesterday’s sell range after the open this morning with the market making new all-time highs at 12580. The DAX has strong resistance at 12600/12650 and today I will be a small seller here as a break and close over 12600 has an eventual target of near 13500/14000 which seems insane. However as we have seen since the DAX broke its key 10800 resistance level after many attempts that the path of least resistance is to the upside. Given the significance of this resistance level I will be a small seller on any further rally to 12590/12640 with a tight 12675 stop. I do not want to be long the market at this time.
My FTSE plan worked well with the market trading lower to my 7170 buy level shortly after I posted yesterday morning. This morning the FTSE is trading much higher at 7225 on the back of the weaker Sterling. Unfortunately as I wanted to be flat ahead of the FOMC I cover this long position at my revised 7187 T/P level and I am now flat. The FTSE should have strong support at 7180/7205 and today I will be a buyer in this area with a 7155 stop which is just below yesterday’s 7165 low print.
Dow Rolling Contract
As mentioned in my S&P commentary the Dow just missed my buy level by 10 points before rallying over 100 points and I am still flat. Ahead of the NFP data tomorrow I cannot see the market selling off and today I will now move my buy level higher to 20845/20905 with a 20805 tight stop.
This morning the Bund is selling off with the market testing 161.30 as I write this commentary. The Bund has very strong support at last week’s low at 160.75/160.65 and today I will now lower my buy level slightly to 160.50/160.90 with a 160.20 stop. I still do not want to be short the Bund ahead of Dragi this afternoon and the NFP data tomorrow.
Gold Rolling Contract
Yesterday I was lucky with my Gold call as after the market hit my 1248 buy level with an initial 1244.50 low print I emailed my Platinum Members to exit this position on any rally higher to 1253. Thankfully Gold spiked to a 1254 high print on the FOMC Statement and I am now flat. This morning Gold is trading at 1234 and now over $60 lower since the DSI reading of 90% was recorded two weeks ago. With tomorrow being a Friday ahead of another potential Military weekend I will again look to buy Gold on any further dip lower to 1218/1225 with a 1211 stop.
Silver Rolling Contract
Silver has closed lower for 12 out of the past 13 trading days, the last seven in a row. Meanwhile the Silver Futures Market have closed lower for 12 straight days, which is the longest streak since 2001. I am sorry that my Silver trading has not worked out over the past week with the market stopping me out of my latest long 17.53 position at 16.75 just as I posted yesterday morning. I bought Silver again at 16.75 and I emailed my Platinum Members to buy some more at 16.50 for an average long rate at 16.63. I lowered my stop to a tight 16.35 on this position which has not been filled. Back in late December when Silver was trading at 15.80 I emailed all my members to say that I had bought Silver for my pension fund and that after the huge rally at the beginning of this year that I had cut 30% at 17.50 and 30% at 18.40. I still retain 40% of my original position as I still believe that Silver will trade higher over the coming years and just before the close last night I bought back most of the 60% that I had originally sold at 16.40. It is much easier to own Silver in a pension fund as you do not have to monitor a Futures position on a Daily basis.