The Canadian Dollar is the top performer following the Bank of Canada’s decision to lift Interest Rates by 25bps. Later in the session UST yields and the US Dollar got a lift following news that President Trump had accepted a Democrat’s deal to lift the debt ceiling until the end of the year. No news from Korea appears to have also been a factor for the improvement in risk sentiment, lifting equities and pushing the VIX lower. The CAD is the outstanding G10 outperformer, up 1.2% following the BoC decision to lift its policy rate by 25bps to 1%. Ahead of the announcement, the market was pricing just under a 50% chance of a hike, although a hike was fully priced for the next meeting in October. So the market was little bit surprised by the timing of the decision. In the Statement the Bank was at pains to stress its concerns over excess capacity, subdued wage, price pressures, geopolitical risks and the strength of the Canadian Dollar.
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For anyone following my Platinum Service it lost 40 points yesterday but is still ahead by 148 points for September, having made 1560 points in August, 1096 in July, 1023 in June, 1076 in May, 1375 in April, 1335 in March, 1481 in February and 1734 in January. Since Istarted this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
Still the Bank cited Canada’s stronger-than-expected economic performance for the hike, warranting a removal of some of the “considerable” stimulus in place. Notably as well, the Bank did not repeat the language from previous statements about the current degree of stimulus being “appropriate”, which the market interpreted as signalling further tightening ahead. The OIS market gives an 85% chance of another hike before the end of the year.
After yesterday’s still decent but softer than expected Q2 GDP print, the Australian Dollar trended lower, but reaction to the BoC news pushed the pair up by about 30 pips, helping it trade back above the 80c mark. A stronger USD later in the session weighed on the AUD, leaving it at 0.80c, essentially unchanged over the past 24 hours.
Meanwhile, after Tuesday’s outperformance, NZD is at the bottom of the pile, down 0.50%. There is no obvious explanation for the kiwi’s underperformance, other than a reversal of the previous day’s strength.
USD indices came under pressure following the BoC’s rates decision. DXY briefly traded with a 91 handle, testing key support levels yet again. The USD rebounded later in the session on the back of news that President Trump had reached an agreement with Democrats to raise the debt ceiling through 15th December. The package includes an initial instalment of $7.85 bn for Hurricane Harvey victims and essentially kicks the fiscal uncertainty down road. The decision is a temporary relief that that should allow the USD and US Treasuries to trade more on fundamentals, however now that we have a potential fiscal showdown in December, a Fed hike by the end of the year could be hinder by fiscal uncertainty even if the inflation data improves.
Adding further uncertainty to the Fed, Vice Chair Fischer resigned effective 13 October based on personal reasons. Adding to the mini sell-off into the close was a Wall Street Journal headline noted that President Trump is unlikely to nominate Gary Cohn to become Fed Chairman. The latter could be positive for the USD at the margin as Cohn was said to favour both lower rates and a weaker USD. But my guess is that whoever gets nominated will still need to favour a softer USD.
News of the debt ceiling uplift saw UST yields push higher. After trading to an intra-day low of 2.06%, 10y UST have ended the day at 2.10%.
Data releases were largely ignored. The Non-Manufacturing ISM index rose to 55.3 in August from 53.9 in July, slightly below the 55.5 consensus. Meanwhile, German Factory Orders unexpectedly fell in July.
As for commodities, oil prices made further gains, up 1% to 1.5%, copper and iron were unchanged and gold slipped 0.4% to $ 1335.00.
This morning on the Economic Front we already had the release of German Industrial Production which came in flat versus a rise of 0.5% expected. At 8.30 am we have the UK Halifax House Prices. This is followed at 12.45 pm by the ECB Rate announcement and Dragi press conference at 1.30 pm. This is obviously the big event of the week. Various ‘source’ reports have suggested that the Bank will not announce the intended fate of its QE bond buying programme until at least the October and possibly not before the December meeting ( Euro strength seemingly a factor at play). I still see a good chance the ECB will today at least signal that the current €60bn monthly buying programme will not last beyond year-end, even if any more detail than that has to wait until Q4 . If I am right the news will be Euro positive, if I am wrong and the ECB decides to stay mute, a lower EUR will be limited by expectations of an October shift. New ECB forecasts are also due out and it will be interesting to see how the inflation forecast is adjusted. A higher Euro is a downward force (current forecast assumes EUR averages 1.09 over 2018-19), but the improvement in economic activity may well be a larger offsetting one.
Also at 1.30 pm we have the US Weekly Jobless Claims and Non-Farm Productivity/Unit Labour Costs. Finally at 2.45 pm we have the Bloomberg Consumer Comfort Index, while at 5.15 pm the Fed’s Mester speaks at an Economic Conference.
September S&P 500
It is so difficult to be short the S&P with the market trading just shy of my 2470 sell level after rallying over 25 Handles from Tuesday’s low print. I am still flat as we await the ECB and Dragi press conference this afternoon. The S&P has strong support from 2443/2449 and today I will raise my buy level to the above range with a 2438 stop. 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 2422/2428 with a 2416 stop. Today I will leave my sell level unchanged from 2470/2476 with a 2481 stop.
EUR/USD
As I mentioned in my Economic Commentary it is difficult to make a case for a lower Euro at this time. As usual I will stay flat until we get the Rate announcement and Dragi press conference and if the Euro dips I will be a buyer from 1.1825/1.1870 with a 1.1785 stop. My only interest in selling the Euro is on a rally higher to last week’s 1.2070 high print with my sell range been from 1.2060/1.2100 with a 1.2135 stop.
December Dollar Index
I have now rolled to the December Contract which trades at a 23 point discount to the September Contract which expires tomorrow. The Dollar has huge support from 91.10/91.50 and today I will be a buyer in this area with a 90.80 stop.
September DAX
The DAX had a huge 250 point rally before yet again running into strong resistance at the 12300 area. I am still flat and I will stay flat until we see what Dragi has to say in his press conference. Yesterday’s move higher was impressive and has to be respected. Today I will now move my buy level higher to 12145/12210 with a 12095 stop. Given the amount of times that the 12300 area has been tested it is only a matter of time before we finally break this level to challenge the 100 Day Moving Average at 12445.
September FTSE
Unfortunately I was stopped out of my long 7365 position near the low of the day at 7325 shortly after I posted yesterday morning and I am still flat. The FTSE has traded sideways for over two months making it difficult to make any points at this time. The FTSE has strong support from 7280/7315 and today I will be a buyer in this area with a 7250 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
Despite the weaker US Dollar, the Dow is struggling to garner any upside momentum and I am still flat. The Dow has support at last week’s 21665 low and the August low at 21597 and this range needs to hold or else we could well see an acceleration to the downside. Today in view of the Dragi press conference I am going to lower my buy range to 21610/21670 with a 21560 tight stop. The Dow has strong resistance from 21830/21890 and today I will be a small seller in this area with a 21935 tight stop.
December BUND
I am still flat the Bund which sold off yesterday as we wait for the ECB news. Today I am going to lower my buy level to 161.40/161.80 with 161.15 tight stop. The Bund has strong support at 161.70 and I would expect a rally initially off any test of this level.
Gold Rolling Contract
Gold is trying to correct its overbought condition. However it is difficult to see Gold breaking back below 1300 at this time given the strength of the recent break above 1296. I am still flat and as we have the ECB this afternoon which should lead to more volatility I am going to lower my buy level slightly to 1313/1321 with a 1304 stop.
Silver Rolling Contract
I am still flat Silver which continues to underperform Gold and this is a worry that we are due a correction after the huge rally of the 15.17 low print on July 10. With this in mind I am going to lower my buy range to 17.15/17.50 with a 16.85 stop. The 17.00/17.30 is good support and I would expect the market to hold this range at the first attempt.
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