US Stocks have continued their positive start to the year while US Treasuries are little changed and the US Dollar is much weaker across the board. Equity reaction to the December FOMC Minutes released was fairly muted and after initially moving lower to then swiftly move higher, US equity markets and Treasury yields are also little changed post the Minutes release. The December FOMC Minutes revealed Fed officials spent a lot of time discussing the potential impact a fiscal stimulus would have on the economy and on the future path for monetary policy. At the margin the Fed appears to be a tad more hawkish noting that gradual approach to policy tightening is appropriate for now, but a quicker pace of rate hikes might be needed to restrain a surge in inflation if a substantial fiscal easing does eventuate.
To mark my 1250th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes ¼ 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 22 points yesterday and is now ahead by 96 points for January having made 1351 points 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 1900 points.
Almost all the Fed participants indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years, however Fed officials also noted the considerable uncertainty about the timing, size and composition of any future fiscal and other economic policy initiatives as well as about how those policies might affect aggregate demand and supply.
On the one hand, there is no unanimous opinion on whether a stronger US Dollar will be enough to offset upward pressure on inflation spawned by faster growth. However many participants judged the risks of a sizeable undershoot on unemployment had increased somewhat and consequently the Committee might need to raise the Federal Funds rate more quickly than currently anticipated to limit the degree of undershooting and stem a potential buildup of inflationary pressures.
Looking at currencies in more detail, the AUD is yet again close to the top of the G10 leader board climbing another 1.0% against the USD over the past 24hrs. The AUD got a boost at the start of the European session and then traded to a high of 0.7285 on the swift USD dip triggered by the release of the FOMC minutes, and settled at 0.7271 in New York. Overnight the Australian Dollar has rallied and is now trading at 0.7310. The Euro has also rallied strongly overnight trading to a high of 1.0575 on general US Dollar weakness.
After yesterday’s 5% drop, oil prices have recovered a bit of ground (+ 1.5%) with the move helping the CAD become the top G10 performer overnight (0.79%). The Canadian Dollar has made a decisive break below its 50MDA, breaking through its mid-December lows and triggering a layer of stop-losses along the way. The currency pair is currently trading at 1.3285 with the 100MDA at 1.3255 is the next technical level to watch. This level was tested earlier this morning. After trading above the 118 mark for most of yesterday’s Asia session, USDJPY is currently trading at 115.85 on more US Dollar weakness across the board with the US Dollar Index now trading 1.5% lower than where I marked prices 24 hours ago.
As for commodities, Gold has rallied strongly overnight on the weaker Dollar and currently trades at $1177, copper is up 2.6%, but iron ore (-0.8%), steam coal (-2.1%) and Met Coal (-5%) are all down.
Going through all the various Eurozone PMI’s, Italy was 3/10ths weaker than forecast at 52.3, France was 3/10ths firmer at 52.9 whilst Germany was half a point better at 54.3. This took the aggregate Eurozone PMI Services index up to 53.7; just one-tenth below its high point for 2016.
The published consensus for EU CPI was 1.0% y/y but after Tuesday’s strong German numbers, the whisper number was 1.1% which is what actually printed. Not all the increase was due to higher oil prices however; the core CPI ex-energy rose from 0.8% to 0.9%.
This morning on the economic front we have UK Services/Composite PMI at 9.30 am and this is followed at 11.00 am by the latest Minutes from the ECB Meeting in December. At 1.15 pm we have the US ADP Employment Change and this data will be closely watched ahead of tomorrow’s Non-Farm Payrolls. Next we have the US Weekly Jobless Claims at 1.30 pm. Finally we have the US Services/Composite PMI and ISM Non-Manufacturing Composite at 2.45 pm and 3.00 pm respectively.
March S&P 500
The S&P continued its positive start to 2017 as expected with the market close to all-time highs made in December. Interestingly it was the small cap stocks that led the rally higher yesterday with the McClellan Oscillator really improving to close with a positive reading of 140. Certainly the weaker US Dollar will help underpin the US stock market at this time. The latest Investors Intelligence Advisors Survey shows the Weekly Bullish Percentage has pushed to 67.4 which is the highest level since February 11, 2016. This reading has been higher only four times over the past nine years, so we are certainly coming to the end of this nine year bull market. The key level to watch on the downside is last Friday’s 2227.75 low print and once we take out the December highs at 2273 we should push to the 2300/2334 resistance level. As I mentioned yesterday I believe this market will hold for most of January until we get the Presidential Inauguration out of the way on January 20. Today I will raise my buy level in the S&P to 2250/2256 with a 2245 stop. I will now move my aggressive buy level higher to 2225/2231 with a 2219 stop. Given the positive price action this week I do not want to be short the S&P at this time.
EUR/USD
As expected the Euro has rallied strongly over the past 36 hours off the 1.0341 low print which we had on Tuesday afternoon. Sentiment towards the Euro remains low and with German inflation and Euro-Zone growth finally beginning to show some life the path of least resistance for the Euro will be to the upside. Unfortunately after I posted yesterday the Euro just missed my 1.0410 buy level with a 1.0425 low print before trading to a 1.0575 high earlier this morning and I am still flat. The Euro will have strong resistance at last Friday’s 1.0654 high and today I will be a small seller on any rally higher to 1.0640/1.0675 with a tight 1.0705 stop. I will also move my buy level higher to 1.0450/1.0490 with a 1.0415 stop.
March Dollar Index
The Dollar is now trading 200 points lower of its 103.85 fourteen year high recorded on Tuesday afternoon. Unfortunately I am still flat the Dollar and a break and close below 101.91 this evening will add to the bearishness of the Dollar. As I mentioned over the past few days all the research that has come across my desk is Euro bullish and Dollar bearish despite the 40% rally that we have seen in the Dollar over the past 2 ½ years. Today I will now lower my sell level in the Dollar to 102.60/103.00 with a 103.35 stop.
March DAX
The DAX continues to trade in a narrow range and I am still flat. I am not going to chase this market higher and I will leave my buy level unchanged at 11450/11510 with the same 11395 stop. I still do not want to be short the market at this time.
March FTSE
I am still flat the FTSE which is again testing its 10 year trendline this morning at 7140/7150 and I am still flat. This is the fourth test of this resistance level since Tuesday and today I will now move my sell level higher to 7180/7220 with a 7255 stop. The FTSE is severely overbought on all my indicators and is due a sell-off. We probably need Sterling to strengthen for this to happen as the weak currency has been the main driver behind this huge move higher since Brexit.
Dow Rolling Contract
The Dow has been the weaker of the US Indices over the past few weeks despite the McClellan Oscillator improving. I am still flat the Dow and today I will leave my sell level unchanged at 20040/20100 with a 20150 stop. Remember we still have a number of Hindenburg Omen’s on the clock with this important signal still valid until Mid April 2017.
March BUND
After Tuesday’s huge sell-off in the Bund, the market traded in a narrow range yesterday and I am still flat. Today I will leave my buy level unchanged at 162.55/162.85 with the same 162.20 stop. I will lower my sell level slightly to 163.80/164.15 with a 164.45 stop.
Gold Rolling Contract
Gold is finally rallying as indicated by the Daily Sentiment Index reading which was unsustainable with its recent 6% bullish reading. Gold has now rallied off its 1123 December low to the overnight high at 1178. I am still flat. Today I will raise my buy level to 1153/1161 with a 1145 stop.
Silver Rolling Contract
My Silver plan worked well yesterday with the market trading to my 16.35 buy level after I posted yesterday morning. I feel naked when I do not have a long Silver position on board and I emailed my Platinum Members to buy the market at 16.45. As I wanted to bank some points for yesterday’s trading I emailed my members again to cut this position at 16.67. As I write this commentary Silver is trading lower at 16.55 and I have bought the market here again with a 16.05 stop.
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