Both Sterling and the Canadian Dollar closed lower on the latest Bank of Canada and Bank of England utterances, helping the US Dollar move ahead again aided too by modestly higher US Treasury yields (10s +2bps to 2.23%). These moves lower saw the Australian Dollar move comfortably back below 0.80. It has already traded – intra-day – through last week’s 0.7956 low. It is incredible to note that over the past month, what has struck most is just how sensitive currency markets are proving to every nuance in central bank speak. An eight big figure rally in GBP/USD after Sterling money markets moved the dial on pricing for a single quarter point November rate hike from 10% to 60% almost beggars belief. So too does a similar eight big figure move on USD/CAD between the time Bank of Canada deputy Governor Carolyn Wilkins suggested in mid-June that the BoC was thinking about lifting rates, and then pulling the trigger some three weeks later.
To mark my 1425th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 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 17 points yesterday and is now ahead by 235 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 I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
In trying to infer what this might means for currencies of countries where central banks have not yet signalled a readiness to contemplate higher rates, a key differentiator is positioning. Ahead of the aforementioned Wilkins remarks, speculative future market positioning in the CAD was running at record shorts; GBP markets were also running large – albeit not extreme – shorts into last week’s BoE narratives. In contrast, AUD speculative positions are already not far off record long extremes.
AUD/USD is not going to be going from 0.80 to 0.88 if the RBA surprises us anytime soon my signalling a shift to a tightening bias. In fact, the bigger risk for the Aussie would be to the downside if the RBA were to hose down current market expectations for a first rate rise that is now fully priced for next August.
The BoC and BoE commentary that has hit the CAD and GBP came after BoC deputy Governor Lane and BoE Governor Carney spoke at the IMF. Lane said that policy makers will be “paying close attention” to how the economy responds to higher borrowing costs and a stronger CAD, following rate increases in July and earlier this month The comments served to push pricing for another quarter point rate rise by December down to 88% from 99% and USD/CAD down -0.8% to 1.2292. Mark Carney meanwhile didn’t downplay early rate rise risks, but did say they would be ‘limited and gradual’. He doesn’t shy away from suggesting UK incomes will be hit by Brexit, but suggest all the Bank can do about this is ensure that the hit to real income is limited by getting inflation down. That’s fine, unless of course raising rates puts the economy into recession. GBP/USD down 0.7% on Carney.
This morning on the Economic Front we have Euro-Zone Current Account and Construction Output at 9.00 am and 10.00 am respectively. Also at 10.00 am we have the German ZEW Survey Current Situation/Expectations. Finally we have US Housing Starts, Building Permits, Current Account Balance and the Import/Export Price Index which will all be released at 1.30 pm.
Meanwhile later today US President Trump gives his Inaugural Address to the UN in New York.
December S&P 500
Since the S&P gaped higher last Monday the market has traded in a very narrow to sideways range each day as we go on hold ahead of the FOMC and Yellen press conference tomorrow evening. The 2505 level is a key pivot point as a break and close over here for 2/3 weeks could well see the S&P have a final melt-up rally and this rally could surprise by its ferocity. This latest rally has been built on low Interest Rates and the promises of tax reform which has still not happened. Both the 3-month and 6-month yield on US T-bills are trading below the Fed Funds Rate so the market, which leads the Fed, is signalling that there will no rate hike at tomorrow’s announcement. Today I will again raise my buy level slightly to 2488/2494 with a 2483 stop. Meanwhile I will continue to be a seller on any further rally to 2516/2523 with a 2528 stop.
EUR/USD
Unfortunately the Euro missed my 1.1885 buy level yesterday before as expected rally back to 1.20. There is a danger that if we get a soft Fed tomorrow then the US Dollar could have another decent sell-off. Today I will now raise my buy level to 1.1895/1.1935 with a 1.1865 stop. Despite sentiment at extreme levels I still do not want to be short the Euro at this time.
December Dollar Index
I am still flat the Dollar and today I will now lower my buy level slightly to 90.80/91.25 with a 90.45 stop which is just below the recent 90.50 low print. Remember a break and close below this support level could well see another large sell-off in the Dollar which would have major impact on most asset classes.
December DAX
I am still flat the DAX which is trying to sell-off as I write this commentary on the back of the stronger Euro. However in my opinion the DAX is in a bull market and dips are to be bought rather than sell rallies. Today I will leave my buy level unchanged from 12420/12475 with a 12380 stop.
December FTSE
Thankfully the FTSE rallied to my 7230 sell level overnight and I am now flat. The FTSE is severely oversold after the aggressive sell-off since last Thursday and I will continue to be a buyer on dips. The FTSE has support at last Friday’s 7153 low print ahead of major support at 7090. Today I will again be a buyer on any dip lower to 7140/7170 with a 7115 tight stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 7060/7095 with a 7020 stop.
Dow Rolling Contract
No change as I am still a seller on any further rally to 22410/22470 with the same 22510 stop. If I am taken short a second time I will then raise my T/P on both short positions to 22210. If over the coming days the Dow does have an aggressive sell-off (which is long overdue) I will be a strong buyer from 21850/21960 with a 21780 stop.
December BUND
I am still flat the Bund and today I will now lower my sell level to 161.60/161.95 with a 162.25 stop. My only interest in buying the Bund is on a dip lower to 160.15/160.55 with a 159.90 stop.
Gold Rolling Contract
Gold traded lower to my 1306 buy late level late in yesterday’s trading session. After the New York close I saw that the Commitment of Traders Report was still extremely bullish of Gold and for this reason I emailed my Platinum Members to exit any long position at 1308.40 and I am now flat. There is now a fair chance that Gold will break 1295 which seems strange when you see how weak the Dollar is trading. If Gold does break 1295 it has strong support from 1275/1282 and I would certainly look to buy any test of this level on the first attempt with a 1268 stop. Otherwise I am going to stay flat and observe.
Silver Rolling Contract
Almost as expected I was stopped out of my long 17.87 long Silver position at 17.45 and I am now flat. Subsequently Silver traded to a 17.03 low print. This move lower sees the Daily Sentiment Index reading fall from 80% bulls on September 8 to 50% bulls last night. We may need to see the DSI fall to 20% before we put in a more meaningful bottom. Silver has support from 16.60/16.85 and today I will be a buyer in this area with a 16.35 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 15.95/16.20 with a 15.60 stop.
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