Yesterday was a trading session of limited market moves with markets treading water ahead of key risk events later in the week (ECB Thursday and US GDP Friday). US Dollar strength continued (DXY +0.2%), Bond Yields barely moved (USTs -1.6bps), while equities were mixed (S&P500 -0.4%; Eurostoxx +0.1%). Speculation over the next US Fed chair also continued with President Trump stating he was “very, very close” to naming a nominee.
To mark my 1450th 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 25 points yesterday and is now ahead by 495 points for October, having made 447 points in September, 1560 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 1600 points.
In FX, US Dollar strength continued with the DXY +0.2% following on Friday’s 0.5% rise. The US dollar has been supported following better prospects for tax reform and continued speculation on the next Fed Chair being more hawkish. Last Friday President Trump said he was considering wither Powell, Taylor and Yellen, while a combination of Chair/Vice-Chair was also a possibility. Last night he said he was “very, very close” to announcing a nominee. Who he chooses remains to be seen, but betting markets still place Powell at the top, followed by Taylor and Yellen.
For markets, the key point is that both Taylor and Powell should be seen as more hawkish than Yellen, while Taylor is also seen as more hawkish than Powell. How hawkish? A hybrid Taylor Tule recently used by Yellen suggests the Fed Funds Rate should be around 2.25% – that is currently 100bps higher than it currently is. If Taylor is nominated then do not be surprised to see a Bond sell-off and further US dollar strength.
Other FX moves were largely contained. The Yen was lower (-0.2%) following the very convincing election win for PM Abe. The win is seen as supportive for ‘Abenomics’ which increases the likelihood of ongoing Monetary and Fiscal policy and also increases the odds for Bank of Japan Governor Kuroda’s term being extended when his term expires in April. It is no surprise then to see Japanese stocks up with the Nikkei up 1.1% yesterday.
As for Europe, the Euro was lower (-0.3%) ahead of the ECB meeting on Thursday. While concerns over Catalonia could have contributed, someone forgot to tell Spanish bond investors where bond yields actually fell (10 years down 4bps to 1.62% and 2 years flat). As for the ECB meeting Thursday, some form of a tapering announcement is expected. A Bloomberg survey suggests the ECB will reduce monthly bond purchases to €20-30bn a month, down from the current €60bn.
Meanwhile, the NZD has found support at the 0.6965 level after having fallen 2.3% against the USD over the past couple of days. Most economists consider fair value models of the currency suggest a figure of around 0.73 so most analysts view the currency as being a bit oversold at the moment. As for how the market has interpreted the prospective government, 2-year swap rates fell 4bps to 2.17% on Friday, 10-year swap rose 1 bps to 3.21%, while inflation breakevens rose. Pricing for the next RBNZ move was also pushed out a few months to Feb 2019. It seems therefore the Interest Rates market is expecting lower real rates, but higher inflation.
This morning on the Economic Front we have German Manufacturing/Services and Composite PMI at 8.30 am and this is followed at 9.00 am by Euro-Zone ECB Bank Lending Survey. Next at 10.00 am we have Euro-Zone Manufacturing PMI and Euro Area Second Quarter Government Deficit. Finally we have US Manufacturing PMI and the Richmond Fed Manufacturing Index at 2.45 pm and 3.00 pm respectively.
December S&P 500
Very late in yesterday’s Chicago session the S&P traded lower to my 2562 buy level. After the S&P Futures Market re-opened last night at 11.00 pm we saw a small bounce and as I wanted to be flat overnight I emailed my Platinum Members to exit any long position at 2564 and I am now flat. The S&P has now spent over three weeks above the key 2505 support level and seven trading sessions over the 2550 support area. For me to turn bearish I need to see the S&P break and close below 2545. Yes this market is severely overbought but until we break some decent support it is very difficult to try and be short. For these reasons I will again be a buyer on any further dip lower to 25512558 with a 2545 stop.
EUR/USD
Frustratingly the Euro just missed my 1.1720 buy level with a 1.1725 low print before rallying 30 points and I am still flat. The Euro has strong support from 1.1665/1.1700. A break and close below 1.1660 risks an acceleration lower as this break will complete a negative Head & Shoulders for a significant longer term sell signal to perhaps 1.1375/1.1440. Today I will now lower my buy level to 1.1660/1.1695 with a tight 1.1630 stop. Given how close we are to long term support I do not want to be short the Euro at this time.
December Dollar Index
No change as I am still flat with the same 92.95/93.25 buy level. If I am taken long I will have a stop at 92.65.
December DAX
I am still flat the DAX as we wait for the market to re-open at 7.00 am. The DAX has strong support from 12860/12905 and today I will be a buyer on any dip to this area with a 12825 stop. Even though the DAX is severely overbought I still do not want to be short the market at this time.
December FTSE
No change as I am still flat the FTSE which has been like watching paint dry given the lack of movement over the past few weeks. The FTSE has strong support from 7405/7440 and I will be a buyer this area with a lower 7370 tight stop.
Dow Rolling Contract
Finally we saw the Dow trade lower yesterday after days of making one closing all-time high after another. However I will not chase this market lower and I will leave my sell level unchanged from 23425/23490 with the same 23545 stop. Meanwhile I will be a strong buyer on any further dip lower to 23060/23130 with a 22995 stop.
December NASDAQ
The NASDAQ was again the weakest of the US Indices yesterday with a late sell-off in Facebook not helping the cause. The NASDAQ has strong support from 5980/6015 and today I will be a strong buyer on any dip to this area with a 5945 stop.
December BUND
Unfortunately the Bund never came close to my buy area as the market goes on hold ahead of the crucial ECB Meeting on Thursday. The Bund has strong support from 160.80/161.20 and today I will move my buy level higher to this range with a 160.50 stop. Ahead of Thursday I still do not want to be short the Bund at this time.
Gold Rolling Contract
Thankfully Gold had a small rally after the European Markets opened yesterday morning which gave anyone still long a decent exit level after the market hit my 1274 latest buy level after the markets re-opened on Sunday night. I am still flat and I am reluctant to chase this market higher. Therefore I will still be a buyer on any dip lower to 1260/1267 with a 1254 stop.
Silver Rolling Contract
Very late in the New York session Silver rallied off an initial 16.84 low print to hit my 17.10 T/P level on my latest long 17.05 position from last Friday and I am now flat. Today I will now look to re-buy Silver on any dip lower to 16.55/16.90 with a 16.25 stop.
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