Yesterday was a calm trading session when all is said and done and not at all resembling the middle of last week. German Chancellor Merkel has been saying what everyone has known – that the Euro is too weak – lifting the single currency and softening the USD. The Chancellor said that the weak Euro is partly to blame for Germany’s trade surplus and that Germany’s products are too cheap in relative terms. That will be music to the President’s ears. Whether the Chancellor’s comments were meant at all for the ears of the ECB and not just for the students she was speaking too, ECB Council Member and Bundesbank President Jens Weidmann noted that price pressures are still muted. He also said that the ECB will need to act when prices rise with policy normalisation to come if the recovery lifts wages.
To mark my 1350th 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 10 points yesterday and is now ahead by 750 points for May, having made 1276 points in April, 1335 in March, 1481 in February and 1734 in January. The previous seven months saw gains of 1351, 1971, 1582, 1142, 1782, 1682 and 2550 points respectively. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1750 points.
The Dow ended yesterday with a 0.43% gain , while the US Dollar closed down 0.1-0.2%, the Euro up marginally, with the AUD up 0.24% while the NZD has fared better, the Kiwi up 0.51% at the top of the FX leader board. US stocks have been assisted by the President’s arms deal with the Saudis. Highly-traded commodities, oil, gold, base metals, and iron ore are all higher, aided by some USD softness. US Treasury yields are steady to a little higher, 2s virtually steady and 10s are up 1.4 bps to 2.25%. Oil has been getting a little more support in the lead up to the OPEC meeting with talk around the market that the OPEC leaders will have to do more to really impress the market as far as production cuts are concerned. In years past, after the Asia crisis and during the GFC, cuts of around 4½mb were announced. (Of course making them stick is another point entirely.)
The other major currency that has come in for some attention has been Sterling. With the UK election two weeks away, polls show the Conservative Party’s lead has halved from 18 to 9, sharpening the market’s attention. PM Theresa May’s weekend policy backflip on a very unpopular policy on dementia care and needing to access housing assets has only sharpened this interest. There has not been undue pressure on the Pound against the dollar though it has lost some ground against the Euro. There is also still the tough road ahead for Brexit negotiations, including over the divorce settlement – including when it should be paid – that remains a particular point of angst on both sides.
RBA Governor Guy Debelle has been speaking in Basel on his way to London for the opening of the FX Global Code on Thursday. He did not speak on the Australian economy nor monetary policy but stuck to his speech on the “basis swap”.
There have been three Fed speakers, all voters this year, Neel Kashkari, Partick Harker, and Robert Kaplan. Kashkari opened a Minneapolis Fed Conference on Inequality, but did not offer anything of a market sensitive nature. Harker also didn’t comment on the economy or rates. Kaplan though did and he still makes the case for three rate hikes this year, and there was very little market impact from his view. And even Kaplan softened his rate view by admitting that progress toward the Fed’s 2% inflation target had been slow. For now at least, he appears to be giving more weight to the continuing strength in the labour market and that recent inflation readings are not a sign of a weakening trend.
This morning on the Economic Front we have German GDP at 7.00 am and this is followed at 9.00 am by the IFO Business Climate and the IFO Current Assessment/Expectations. This is followed at 9.30 am by UK Public Finances and the CBI Retailing/Distributive Reported Sales at 11.00 am. Finally at 3.00 pm we have US New Home Sales and the Richmond Fed Manufacturing Index.
There are two more Fed speeches later this evening with both Kaskari and Harker speaking at 8.15 pm and 10.00 pm respectively.
June S&P 500
Unfortunately the S&P missed my 2376 buy level with a 2378.25 low print before rallying to close most of last week’s 2384/2394 ‘’Open Gap’’ and I am still flat. Volume was low yesterday with only 5.8 billion shares traded which is the lowest since April 18. Everyone knows that this market is overvalued but until we get a sell extreme that lasts for more than a few days, traders will continue to ‘’buy the dip’’. I am very nervous for this market going forward and if anyone is overly exposed to equities in their pensions I would look to scale back some of these risks. Remember we are now in the May to November time frame when traditionally the US equity market underperforms or sells off aggressively. I think last Wednesday’s aggressive sell-off was the first warning for the market. Against that as I mentioned yesterday that I have to respect the fact that the S&P closed over 2379 on Friday and today I will again raise my buy level to 2379/2385 with a 2374 stop. My only interest in selling this market is still on a rally higher to 2404/2410 with a 2416 stop. One thing that I have learned over the years is not to force the market and we must wait for the market to tell us when it is time to put on a more macro short position.
EUR/USD
Initially my Euro plan worked well with the market trading lower to my 1.1165 T/P level on my 1.1190 short position. Unfortunately literally minutes after I cut this position German Chancellor Merkel hit the wires saying that the Euro was too weak and boom the market traded higher through my second 1.1220 sell level before stopping me out of this trade at my 1.1255 revised stop loss and I am now flat. As of last Friday the Daily Sentiment Index reading for the Euro was at 75% which is not quite as excessive as the Dollar Index DSI reading which fell to just 5% in the same survey. Looking at the Daily Chart the last time the Euro was at 78% in April 2016 the Euro was trading over 1.15 before falling below 1.10 four weeks later. These DSI readings do work but do take time as we saw earlier this month with Silver which has now rallied 8% since its 16.04 low print following a low DSI reading three weeks ago. Today I will again look to sell the Euro on any rally higher to 1.1270/1.1310 with a 1.1350 wider stop. The Euro has very strong support from 1.1030/1.1070 and today I will be a buyer in this range with a 1.1005 tight stop.
June Dollar Index
No change as I am still long from early yesterday morning at 97.00 with the same 96.60 stop. I am more comfortable in being long the Dollar Index given its 5% DSI reading, plus the fact that the momentum for the Dollar’s sell-off has slowed since early Friday. This extreme sentiment reading that spikes lower or not, shows that a counter trend bounce is fast approaching. The Dollar has very strong resistance at 98.50 which needs to break and close above for the Dollar to be back on a firmer tone.
June DAX
I am still flat the DAX which continues to underperform the US Indices which is understandable when you consider how strong the Euro is trading after its nine big figure rally since early January. Today I will leave my buy level unchanged at 12470/12530 with the same 12415 wider stop. Despite the strength of the Euro I still do not want to be short the DAX at this time.
June FTSE
The Election is now getting interesting in the UK following the latest polls. I am still flat the FTSE which is now trading just shy of its all-time latest high at 7496/98. I am reluctant to chase this market higher and today I will only raise my buy level slightly to 7400/7440 with a 7365 stop.
Dow Rolling Contract
The Dow continued to bounce of Thursday’s 20490 low print with the market closing over its next resistance level at 20900 last night. However as I mentioned in my S&P commentary above, volume was very light. The Dow will continue to have intra market bearish divergence as long as it cannot break and close over its March 1, high at 21169. Today I will now raise my buy level slightly to 20710/20780 with a 20655 stop. Despite how overvalued that the Dow is trading I still do not want to be short the market at this time.
June BUND
My Bund plan worked well with the market trading lower to my 160.85 buy level before rallying to my revised 161.05 T/P level and I am now flat. As I have mentioned countless times the fact that the Bund Yield is so low despite the alleged German Economic recovery really worries me as to what ‘’Black Swan’’ event is coming down the tracks. These are the most difficult markets to trade in many years with the fact that so many outside factors can turn these markets on a dime whether Geo-Political or Economic. Today I will again look to buy the Bund on any dip lower to 160.35/16060 with a 159.95 stop.
Gold Rolling Contract
Gold has traded sideways for nearly three months as we approach the key 1264/65 resistance level ahead of the 4.5 year mega trend line at 1280/1285. I am still flat Gold and today I will now raise my buy level slightly to 1238/1245 with a 1233 stop.
Silver Rolling Contract
I am getting more and more bullish of Silver following its rally from last Wednesday’s 16.42 low print ahead of the 16.05 low on May 9. This view will be re-enforced the longer we can hold over the 15.80/16.00 December 2016 low which now acts as very strong support. On top of that, after setting a record net-long position of 98,845 contracts on the week of April 10, Managed Money Accounts have now liquidated 80,547 of those contracts, or 81% of their position over the past five weeks. This is a stunning reversal and to me it is now only a matter of time before Silver breaks its next key resistance at 18.69 on its way to test last July’s 21.04 high. As a result of this I have now bought Silver here at 17.13 with a 16.75 stop.
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