The past 24 hours has finally seen a change of sentiment towards the US Dollar and Equity markets across the Globe with US and European Indices down sharply since yesterday morning. Additionally, concerns about USD-denominated debt across the developing world are weighing on emerging market currencies. The Japanese Yen tops the major-currency leaderboard against the US Dollar with a 1.5% gain to 119.60. The rare outperformance can hardly be attributed by Japanese data which continues to disappoint. The second reading of Q3 GDP showed that growth fell by 0.5% which was worse than the initial -0.4% print and side stepped a market expecting some improvement to -0.1%. Instead there seems to growing speculation that the Yen’s depreciation has come about too quickly. Japanese Officialdom would be quick to agree, now sensitive to the complaints of Japan’s importers and the last 24 hours has seen the biggest USD/JPY’s fall since Mid-October.
The steady climb of the Yen against the US Dollar eventually left an impression on the Euro and Sterling which turned higher after initially looking rather sick. Commodity linked currencies failed to catch a break however with Brent and WTI OIL both off a hefty 4%.
The bottom half of the FX leaderboard is packed with emerging market names partly as a result of a poor growth pulse from China but also thanks to growing awareness of emerging market debt dynamics. In its Quarterly Bulletin the Bank of International Settlement warned of the financial stability risks inherent in decision of many EM companies to raise debt in US Dollars.
This morning on the economic front we have UK Industrial Production at 9.30 am. This is followed at 12.30 pm by the US NFIB Small Business Optimism. Finally at 3 pm we have the JOLT’s Job Opening which is one of the most important indicators which Fed Chair Janet Yellen pays close attention to. Earlier at 12 pm the ECB’s Makuch is speaking.
December S&P 500
The US Stock markets generated another Hindenburg Omen yesterday which is now the fifth in the previous six trading sessions. This is a seriously worryingly development for the stock markets going forward. The S&P has left two significant gaps below the market at 1990/1994 and 1900/1905 and if the market can break and close below 2048 it opens up the possibility of at least the first of these gaps getting filled. Sentiment is at extreme levels with the result that nobody is expecting a sell-off especially since we are in one of the strongest seasonal times of the year for the stock market. However the fact that we had had 5 HO’s in the last week is a real worry.
I am still short at 2079 from last Friday and today I will lower my stop on this position to 2065. If the S&P can break 2048 (but only if it does this after 3.30 pm) I will add to my short position with a 2057 stop for both positions. Interestingly I looked at the monthly chart for the S&P last night. This chart is showing an extremely overbought condition and amazingly it shows that the S&P can fall 20% and still be in an uptrend.
Euro/USD
The Euro plan worked out well yesterday as after I posted it was trading at my 1.2260 buy level and after a nice rally overnight I have covered this position at 1.2350 and I am now flat. Today I will again be a buyer on any dip to 1.2310/1.2340 with a 1.2280 stop. I still believe the Euro can trade back to at least 1.2700 before resuming its downtrend.
US Dollar Index
The US Dollar is finally looking to roll over to the downside after the huge rally from its 78.91 low back in May. I am still short from last Friday at 89.25 and today I will lower my stop on this position to 89.50. A decline through its next major support at 88.20 will indicate that the largest correction since May is underway.
December DAX
The Dax has been very frustrating to trade over the last two weeks especially having been stopped out of my 10010 position near the top of the market on Friday at 10060, only to watch as the market was hit hard after I posted yesterday morning. The Dax is down hard again this morning not helped by weaker German Imports which fell 3.1% last month versus -1.7% expected. Today I will lower my sell level to 9950/9980 with a tight 10020 stop.
December FTSE
The FTSE continues to lead the major Indices lower and this theme is continuing this morning with the market already 1.5% lower. The FTSE has some support from 6520/6550 and today I will be a small buyer in this area with a tight 6495 stop. My only interest in selling the FTSE is on a rally back to 6620/6640 with a 6660 stop.
Dow Rolling Contract
No change as I am still short from last Friday at 17970. I am hoping that this trade will turn into a more macro position especially given how over valued and over extended this market is. I am encouraged the fact that we had another Hindenburg Omen yesterday and today I will lower my stop slightly to 17950.
March BUND
The Bund plan did not work out so well yesterday as after I posted it was trading at my 153.20 sell level before rallying and stopping me out of this trade for a small loss at 153.50 and I am now flat. The Bund is now trading at record levels with yields now at an all time low which is just incredible when you think we are nearly 8 years into an economic recovery. Today I will again be a small seller on any further rally to 153.90/154.20 with a 154.45 stop.
Gold Rolling Contract
The Gold plan worked out very well yesterday as it started to rally when the Equity markets fell. It is nicely higher this morning at 1207 and I have covered my 1189 long position here. Again if Gold can break and close over its now critical resistance at 1212 I will looked to buy again with a 1199 stop.
Silver Rolling Contract
Silver continues to trade in a narrow range since last Monday’s Key Day Reversal. I am still long at 15.10 and I will leave my stop the same at 16.10.
January NYMEX Crude
Crude had a very bad day yesterday as it fell another 4%. Crude just opened lower and never had any bounce at all during the day. I went long at 64.40 but unfortunately I was stopped out of this trade at 63.60. Given how oversold Crude is trading I have gone long again this morning at 62.80. I will leave a 61.90 stop on this position.
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