In 1979 President Carter endorsed a bill to have a holiday in honour of Martin Luther King (MLK), but a Conservative Congress at the time refused to pass the bill. Eventually President Reagan signed the holiday into law in 1983 and it was first observed three years later. Well with the US celebrating MLK’s birthday, unsurprisingly we have had a relatively quiet trading session yesterday. That said the risk off mode seen in Asia yesterday dominated proceedings with all European Indices closing in negative territory while core European Bond Yields ended the day a touch lower. Gold has gained just under 1% and over the past 24 hrs, The Japanese Yen, the preeminent safe haven currency, was the only G10 currency that has outperformed the USD in yesterday’s session although that has changed overnight with the rebound in Sterling and the Euro.
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 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 65 points yesterday and is now ahead by 875 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 my Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points.
News over the weekend reporting PM Theresa May will deliver a speech today outlining the UK plans to exit the EU and regain control of immigration triggered a selloff in the pound and has been the main catalyst for the risk aversion seen in Asia yesterday morning and and with follow through into yesterday’s European session. That said, Donald Trump comments over the past few days have done little to ease market concerns, while the president elect comment that he wouldn’t name China as a currency manipulator on “day one” was seen as a positive, he also said that his adherence to the One China policy depends on progress by China on trade issues. Given Beijing sensitivity on this latter issue, Trump’s comments have not been seen as conducive to ease tension between the two countries. Similarly, Trump’s prediction that other countries will follow Britain exiting the bloc while also labeling the EU a “vehicle for Germany” have raised concerns over the future transatlantic alliance.
Looking at currencies in more detail, the USD is stronger across the board with DXY +0.38% and BBDXY +0.30%. As noted above, the risk aversion tone has also benefited the yen. After yesterday’s Sydney’s close, USDJPY traded down to ¥113.25 overnight and is well off its early January high at 118.70. GBP/USD has also been pretty steady, after yesterday’s big drop from 1.2199 to 1.1988, the currency pair has managed to trade back above 1.21 for most of the overnight session.
With the US market closed, US Treasury futures have traded sideways in a very tight range and core European Bond Yields are a little bit lower. 10y Bunds closed -1.5bps at 0.319% and 10y UK gilts ended -5.2bps at 1.308%. The rally in UK Gilts suggests risk aversion has supported the bid, however we can help but think that inflationary concerns from a softer currency will turn to be a negative. Incidentally, just after the close last night, Bank of England Governor Carney has been on the wires noting that policy makers will be monitoring developments closely as the impact of the weakening pound starts to feed through into prices. The Governor reiterated that BOE has limited tolerance for inflation.
This morning on the economic front we have UK CPI, PPI and House Price Inflation at 9.30 am. This is followed at 10.00 am by the German and Euro-Zone ZEW Survey/Expectations. Yet again we have no US economic data although at 1.45 pm the Fed’s Dudley is speaking in New York on Consumer Behavior.
Today’s big event will be Theresa May’s speech on her strategy for negotiating Britain’s exit from the European Union and to add more drama to the event time and location of the speech has not yet been announced. The PM is expected to walk a fine line between providing enough information on the Government’s intentions without necessarily showing too much of Britain’s negotiating hand ahead of official discussions with the EU. That said, the key take away is that the central scenario is shifting towards pricing a fast and potentially disorderly Brexit. The UK Supreme Court decision on whether the Government must defer to Parliament before triggering article 50 (due out any day now), may provide GBP some respite (assuming the court rules against the government), however the Court decision is unlikely to change the path to Brexit. Either way, GBP volatility is likely to remain elevated.
March S&P 500
Normal trading should resume today after yesterday’s US MLK Bank Holiday. I am still flat the S&P and today I will lower my buy level slightly to 2251/2257 with a 2246 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 2236/2242 with a 2231 stop. I still expect any sell-off in the S&P to be contained ahead of Trump’s inauguration on Friday. My only interest in selling the S&P is still on a rally higher to 2285/2291 with the same 2296 stop. Until we see a break and close below the December 30 low at 2227.75 the trend is up.
EUR/USD
Frustratingly the Euro just missed my 1.0575 buy level with a 1.0579 low print before the market rallied strongly overnight. There is no doubt that the comments from President elect Trump in his interview with the Wall Street Journal last Friday has put at least a temporary top in the US Dollar. His comments follow the significant downside Key Week Reversal in the US Dollar two weeks ago and last week’s downside Key Day Reversal. This has been my view all long that to get manufacturing going in the States again he needs a weaker Dollar. Today I will no raise my buy level to 1.0600/1.0640 with a 1.0565 stop. Remember a break and close over 1.0670 is at least short-term bullish opening up the possibility of a move higher to the December high at 1.0874.
March Dollar Index
I was hoping that the sell-off in Sterling would see a larger move higher in the US Dollar but that was stopped in its tracks by the large reversal in Cable overnight and I am still flat. Today I will now lower my sell level to 101.30/101.70 with a 102.10 stop. My only interest in buying the Dollar is on a dip lower to 99.30/99.80 with a 98.95 tight stop.
March DAX
The DAX continues to trade sideways in a very narrow range of 11403/11692 as we await the next break in the market. With the Euro beginning to rally my own view is the DAX will break lower but we probably need to see what the ECB and Dragi say at Thursday’s ECB Meeting first before we can draw any main conclusions. I am still flat the DAX and today I will now lower my sell level slightly to 11625/11675 with a 11725 stop. Meanwhile as a result of the stronger Euro I will now lower my buy level to 11360/11425 with a tight 11320 stop.
March FTSE
My short 7295 FTSE position worked well with the market hitting my 7255 T/P level after I posted yesterday morning and I am now flat. I would expect a lot of volatility when PM May delivers her Brexit speech later. Sterling is oversold and due a major correction after its massive sell-off over the past few months. This sell-off in Sterling has seen a huge rally in the FTSE which is starting to look tired. Today I will again look to sell the FTSE on any rally higher to 7260/7295 with a 7330 stop. Given the significance of today’s PM speech I will now lower my buy level in the FTSE to 7125/7160 with a 7095 stop.
Dow Rolling Contract
No change as I am still a buyer on any dip lower to 19720/19780 with a 19665 stop. Given the inauguration on Friday I still do not want to be short the Dow at this time.
March BUND
My Bund plan worked well as shortly after I posted the Bund traded lower to my 163.45 buy level before rallying to my revised 163.70 T/P level and I am now flat. Today I will again look to buy the Bund on any dip lower to 163.40/163.70 with t a 163.05 stop which is just below last Friday’s low print. I still do not want to be short the Bund especially ahead of the ECB Meeting on Thursday.
Gold Rolling Contract
Gold has now broken and closed over its 100 week and 500 day Moving Average at 1200/1202 which is bullish. The next resistance level is at 1220 and given the weakness in the Dollar it should be no problem to at least test this next resistance level. I am still flat Gold and today I will raise my buy level to 1193/1201 with a 1186 stop.
Silver Rolling Contract
Silver unfortunately missed my 16.75 buy level with a 16.76 low print last night. Given the significance of today’s sell-off in the US Dollar I have now gone ahead and bought Silver here at 16.95 with a tight 16.50 stop. If Silver can break and close above 17.27 we should see a quick move higher to at least 17.70/18.00.
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