Hot on the heels of the Government’s Budget MYEFO yesterday, both Fitch and Moody’s re-affirmed Australia’s rating at AAA. Mid-afternoon, S&P also reaffirmed its AAA rating, saying the mid-year update had no immediate rating impact. They did though warn that the update “further pressures the rating” and that “they remain pessimistic about the Government’s ability to close existing budget deficits and return a balanced budget by ….. 2020-21. They went on to note that “over the coming months, we will continue to monitor the Government’s willingness and ability to enact new budget savings or revenue measures to reduce fiscal deficits materially over the next few years.” Next year’s Budget will likely be the next assessment.
To mark my 1225th 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 70 points yesterday and is now ahead by 1146 points for December having made 1971 points in November and 1582 points 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.
The AUD seemed to take all this news in its stride. It did rally initially on release of MYEFO’s revelation of the still-expected 2020-21 return to surplus (despite larger interim deficits) but some selling was evident in both sessions overnight. We would note that copper and other base metals were lower and equity markets have been choppy, though the VIX has been lower, US equity markets managing modest gains.
The AUD has been testing lower levels is a session not marked by further aggressive US Dollar buying. Rather, the US Dollar has been mixed with US Treasury Yields showing some signs of tiring above the 2.50% area for the 10s, buying given some further impetus by the assassination of the Russian ambassador to Turkey at an art gallery in Ankara and perhaps in the news of a truck ploughing into a Christmas crowd in Berlin, killing twelve people.
Late in the session, Janet Yellen’s upbeat speech on the labour market to students at the University of Baltimore had put a floor in the session under the US Dollar and US Treasury Yields. Her speech was not a detailed exposition of the US labour market but rather an upbeat assessment to students about very good current career opportunities for those now entering the job market that is the strongest for a decade. She said the right things as far as a positive assessment of the job market is concerned, noting “job creation is continuing at a steady pace; the layoff rate is low, that job openings are up over the past couple years, which is another sign of a healthy job market. There are also indications that wage growth is picking up, and weekly earnings for younger workers have made strong gains over the past couple of years.” She then went on to espouse to students why those with degrees do better in the job market.
On the wider currency front, while the AUD has been an under-performer overnight, at the other end of the spectrum was the Japanese Yen that was bought on the back of the news out of Turkey to as low as 116.60, before the US afternoon renewed Yellen-inspired USD buying. Some very recent post Berlin yen buying has resumed.
While European markets continue to fret about Italy’s banking system, the zone’s largest economy has shown signs of picking up economic momentum into end year. Germany’s December IFO Survey for December was very solid, the Current Assessment index rising to 116.6, the strongest since early 2012 and more consistent with growth comfortably in the 2s than its last reported GDP pace of 1.7% growth.
Overnight the Bank of Japan left Monetary Policy unchanged while in it’s Statement it has upgraded economic assessment leading to a rally in USD/JPY to 117.80 as I write this commentary. The Nikkei closed up 0.5% at 19,500 and is now an incredible 5000 points higher since the post Trump victory closing low at 14,500 on November 9.
This morning on the economic front we already had the release of German PPI which in at +0.3% versus +0.1% expected. At 9.00 am we have Euro-Zone Current account and this is followed at 11.00 am by UK CBI Reported Sales. We have no US data due today as the markets wind down for Christmas.
March S&P 500
Unfortunately the S&P just missed my 2252 buy level with a 2253.50 low print before the market rallied strongly and I am still flat. Internally the market also rallied with the McClellan Oscillator closing at a positive 41 print. Yesterday’s trading session was extremely quiet and that continued overnight with the S&P just trading in a three handle range which is very unusual on a Bank of Japan Meeting. Today I will raise my buy level slightly to 2248/2254 with a 2243 stop as nothing has changed in my forecast that the S&P will slowly work its way higher to the major 2300/2334 resistance level over the coming days. I still do not want to be short the S&P at this time despite how severely overbought the S&P is currently. The S&P needs to break and close below 2213 before we see real selling hit the market.
EUR/USD
My Euro plan worked well with the Euro initially hitting my 1.0415 buy level before rallying back over 1.0450 ahead of Yellen. As I wanted to be flat ahead of her speech I emailed my Platinum Members to cut this long position at 1.0435 and I am still flat. This morning the Euro is trading at 1.0390 which is just above last Thursday’s 1.0366 low print. While the Euro may make a new low, the depth of pessimism toward the Euro is so extreme as shown by the Daily Sentiment Index which just had three consecutive days of 10% Euro bulls or lower. Just look at the movement in the Bund over the past week which has rallied over 350 points on similar pessimism. Today I will again look to buy the Euro on any further dip lower to 1.0320/1.0370 with a 1.0280 stop.
March Dollar Index
My Dollar plan also worked well with the Dollar trading higher to my 103.00 sell level before selling off. As I wanted to be flat ahead of Yellen I cut this position at my revised 102.70 T/P level and I am now flat. The Dollar has strong resistance at 103.60 and given the DSI reading of 96% this rally is in the very latter stages. For these reasons I will again look to sell the Dollar from 103.50/103.85 with a 104.15 stop.
March DAX
The DAX continued to rally yesterday in what was a very quiet trading range for the market. Despite the latest terrorist attacks the market just regroups and marches higher. Despite the DAX being severely overbought it is a waste of time in trying to pick a top as the bulls are in complete control. Given how overbought this market is trading it is not giving anyone who is short any meaningful sell-off to cover their position. Today I will raise my buy level to 11290/11350 with a 11240 stop.
March FTSE
Unfortunately the FTSE just missed my 6900 buy level before rallying on the back of the weaker Pound. Today I will raise my buy level to 6885/6915 with a 6855 stop. With the Futures market trading over 60 points lower than the Cash FTSE it is very difficult to go short.
Dow Rolling Contract
The march to Dow 20,000 continues albeit in a very slow manner. Yesterday was one of the quietest trading sessions for the Dow in many weeks and today I will leave my sell level unchanged at 20050/20120 with the same 20170 stop. I will also leave my macro short interest sell level unchanged at 20250/20400 with the same 20520 stop. Given how overbought the market is trading as shown by my detailed commentary over the past week in relation to the RSI, I do not want to be long the Dow at this time as this market can turn very quickly.
March BUND
My view of buying the Bund has been correct over the past two weeks but unfortunately the Bund missed my 161.90 buy level with a 162.03 low print shortly after I posted before rallying 150 points and I am still flat. Today I will look to sell the Bund on any rally higher to 163.45/163.85 with a 164.25 wider stop. The Bund has very strong resistance in my sell area and is due a correction after its 350 point rally over the past few trading sessions. I will also raise my buy level slightly to 162.00/162.30 with a 161.75 tight stop.
Gold Rolling Contract
Gold has continued to trade in a narrow range with the market hitting my 1133 buy level overnight. As I am already long Silver I emailed my Platinum Members to exit this position for a small gain this morning at 1135 and I am now flat. Today I will again look to buy Gold on any dip lower to 1115/1124 with a 1107 stop.
Silver Rolling Contract
No change as I am still long Silver form last Friday at 16.20 with the same 15.60 stop.
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