The US Dollar continues to rally after last month’s Downside Key Day Reversal albeit in a very small way, The narrow DXY index has now risen every day since January 31st and the broader BBDXY index on each of the last seven trading days. DXY, dominated by the Euro and Yen, is now almost 1.5% off its January lows, while the BBDXY is up a less impressive 0.7%. Gains nevertheless, after a period where many US Dollar bulls were getting ready to throw in the towel on the ‘Trump reflation’ trade and already becoming evident in the likes of FX futures market positioning which has witnessed a steady erosion in ‘speculative’ dollar longs so far this year.
To mark my 1275th 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 35 points yesterday and is now ahead by 737 points for February having made 1734 points 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 nascent revival in the fortunes of the big dollar is evidently doing nothing as yet to upset the performance of the Australian Dollar, now the only G10 currency to be showing a month-to-date gain against the USD. It’s up 0.78% and which means it is now up more than 1% against every major non-dollar currency (including by over 2.5% against the kiwi dollar).
In asking why, the failure of the RBA to express any overt negative opinion about its value alongside a more upbeat economic view is obviously one factor, but more pertinent is the relentless rise in the price of iron ore. Reflecting the strong showing by the Chinese futures market yesterday, the benchmark import price has jumped by 6.5% overnight to $92.23. This is its first time above $90 since August 2014 and now its highest level since July 2014.
Accompanying – or leading – the revival in the big dollar’s fortunes yesterday has been a further tick higher in US Treasury yields with 10s up another 2.5bp to 2.432% and so some 10bps off their recent lows. U.S. stocks meanwhile are continuing to make new record highs by the day, the S&P500 closed 0.52% higher at 2328 with the Dow and other Indices not far behind. President Trump’s promise of phenomenon fiscal policy announcements in coming weeks are still resonating, with the risk of disappointment obvious. Within the S&P, 10 out of 11 sectors closed higher, with Financials again the stand out performer with a 1.12% gain on rate hike optimism and the fact that the Dodd Frank Act will be amended to ease lending conditions. Meanwhile Apple shares also hit a record closing price on exuberance over the next iteration of the iPhone.
In Commodities, oil lost 1.8% on supply concerns due to increased US output, while Gold closed 0.75% lower as market optimism eroded safe haven demand.
This morning on the economic front we already had the release of German GDP which came in at +0.4% versus 0.5% expected. Germany also released its final CPI for January and this did come in at expected with a -0.6% print. At 9.30 am we have UK CPI, PPI and the House Price Index. This is followed at 10.00 am by Euro-Zone GDP, Industrial Production and the ZEW Survey Current Situation/Expectations. Germany will also release its ZEW Survey at the same time. Next we have the US NFIB Small Business Optimism at 11.00 am and PPI at 1.30 pm.
At 3.00 pm, the first of Janet Yellen’s two semiannual Congressional testimonies looms large. This one is to the Senate Banking Panel. I would guess that the Fed chair will struggle to offer concrete guidance outside of the existing ‘gradual’ approach to reducing accommodation, given the still highly uncertain picture regarding US administration fiscal policy proposals. It’s therefore also highly doubtful she’ll move to either rule in or out the possibility of a next rate rise coming as soon as March 15 – currently afforded a 36% probability by the OIS market.
One point of focus independent of trying to read the Yellen tea-leaves regarding near term interest rate risk will be any discussion regarding plans for shrinkage and eventual normalisation of the Fed’s balance sheet. This is a topic which as we’ve seen during the 2013 ‘taper tantrum’ and last year regarding possible ECB QE tapering, can be very bond market sensitive.
I would also guess that some Senators will be quizzing her on the prospects of (or her enthusiasm for) being reappointed to the Fed Chair when her current term expires next January. And/or whether – if not reappointed – she intends to stay on as Governor (and where her term doesn’t expire for another 4 years). Expect tight-lipped diplomacy to reign.
March S&P 500
The unrelenting rally in the S&P shows no signs of abating as the market makes one new high after another every day over the past week. This is what I call the ”Blow Off Phase” and of course is not sustainable but trying to short this market for more than a few hours is waste of hard earned capital. The Earnings Ratio for the S&P now stands at an equally unsustainable 26 with the market now pricing in more than what even I deem possible. Trump has going to have to do something special with his tax cut proposals to keep this rally going. Remember we have not had a 3% GDP growth for 11 years with last year coming in weak at just 1.6%, despite all the QE and there is no doubt the market is racy. Yesterday I shorted the Dow twice as outlined below and for this reason I did not sell the S&P. For any of my Premium Members who did sell the S&P, the market did trade to a 2329 high within my 2325/2331 sell range and is currently trading at 2323 as I write this commentary. For those members who are still short I would go flat ahead of Yellen’s Testimony this afternoon. If the market continues to rally during or after her speech I will again look to sell the S&P from 2333/2339 with a wider 2345 stop. I will also move my buy level higher to 2309/2315 with a 2303 stop
EUR/USD
The Euro traded lower to my average buy level at 1.0605. I am still long and this morning I will now raise my stop on this position to 1.0565. With Yellen speaking this afternoon I will use any rally to exit this trade ahead of her Testimony. Subsequently if the Euro sells off again after her speech I will again look to buy the Euro from 1.0515/1.0550 with a 1.0485 stop. The 1.0525 level should act as good support initially for the S&P. I still do not want to be short the Euro at this time.
March Dollar Index
I am still flat the Dollar which continues to rally despite last month’s rare Downside Key Month Reversal. I am not surprised that the Dollar has rallied after falling 5% in January and as you have seen I have not tried to sell the Dollar so far this month. Normally when you get a big technical break the market tends to trade in the opposite direction first before resuming its original direction. I would expect the same thing to happen with the Dollar but I do not think we are at that point yet. Today I will again raise my buy level to 100.00/100.40 with a 99.70 stop.
March DAX
Unfortunately the DAX just rallied as I posted yesterday morning with the market again testing its January high at 11800 before selling off slightly and I am still flat. As I mentioned yesterday, the DAX has traded in a 400 point range for nearly two months. With the trend in the DAX still higher it is pointless in trying to short unless we break and close below the early January low at 11400. Today I will move my buy level higher to 11665/11710 with a 11620 stop. If the DAX does break and close over 11815, then the next target level is 11940 and then 12030.
March FTSE
I am still flat the FTSE which is struggling to move higher. Today I will leave my buy level unchanged at 7130/7165 with the same 7095 stop.
Dow Rolling Contract
Thankfully after I posted yesterday morning both the S&P and Dow were trading well below my original sell levels from very earlier which gave all short positions a decent exit level. Subsequently after the US stock markets opened the Dow rallied hard with the market hitting my 20380 initial sell level before rallying to a new all-time high at 20445 and this rally enabled me to add to my original short position at 20430 for an average short position at 20405. The Daily Sentiment Index closed last Friday at 85% stock bulls and is likely to be higher last night after yesterday’s 0.75% rally. This is the highest level since last July, which was just before the Dow sold off 5%. I am not saying that the same thing is going to happen here but with the Weekly Investors Advisors Survey at 70% bullish as mentioned in last Thursday’s Daily Commentary (which is the highest since January 1987) the risk is increasing of a meaningful sell-off. With Yellen speaking this afternoon obviously I want to be flat ahead of her Testimony and I have just cut my short position here for a breakeven and I am now flat. If the Dow subsequently rallies after her speech I will again look to sell the Dow from 20530/20600 which is where we have a very important 7 month trend line. If I am taken short I will have a stop at 20660. Given how overbought the Dow is trading I do not want to be long the Dow at this time.
March BUND
I am still flat the Bund and I will now lower my sell level to 164.25/164.55 with a 164.85 stop.
Gold Rolling Contract
My Gold plan worked well with the market trading lower to my 1220 buy level before rallying back above 1230 overnight. As so many of my calls hit at the same time yesterday I emailed my Platinum Members to exit this position at 1223.50 and I am now flat. Today I will again look to buy Gold on any dip lower to 1212/1219 with a 1206 stop.
Silver Rolling Contract
Silver traded lower to my 17.80 buy level. I am still long and I will now raise my stop on this position to 17.30.
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