The global macro picture has been muddied by a rise in geopolitical tensions while economic data releases have been largely ignored and safe haven assets have outperformed. North Korea has warned of nuclear strikes if provoked and Trump’s fingers have also played a role, tweeting “”North Korea is looking for trouble,” and “If China decides to help, that would be great. If not, we will solve the problem without them! U.S.A.”. US Secretary of State Tillerson has arrived in Russia with news headlines suggesting President Putin has hardened his support for the Syrian regime. Earlier in the day the G7 meeting concluded with a united message condemning the Syrian chemical attack, but there were clear divisions over possible next steps.
To mark my 1300th 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 firstname.lastname@example.org for details.
For anyone following my Platinum Service it made 135 points yesterday and is now ahead by 591 points for April, having made 1335 points 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.
So the rise in political tensions has boosted the demand for safe haven assets. Gold is up 1.7% and in the process it has punched through its 200 day moving average. The yellow metal currently trades at $1274, its highest level since mid-November last year. Meanwhile, 10y US Treasury yields have rallied over 4bps and are now trading just under the 2.30% mark. The 2.30%-2.60% range in 10y UST held since the start of December last year is once again been tested to the downside.
The flight to safety and decline in US Treasury yields has seen the Japanese Yen outperform all other currencies. USD/JPY is up 1.20%, the pair is now trading at ¥109.60, its lowest level in 5 months. From a technical perspective the move sub ¥110 means that USD/JPY has a fair bit of room to trade lower.
US equities have closed marginally in negative territory, but the spike in risk aversion has seen the VIX Index climb above 15 for the first time since November 10. Notably and despite the rise in risk aversion, commodity linked currencies have managed to hold their ground. Overnight the AUD traded to a session low of 0.7480, but in the past few hours it has managed to settle around the 75c mark. The NZD is at 0.6959, 10pips above its average level over the past 3 days.
The Euro is a little bit stronger against the USD and is back above the 106 level. The French election remains a concern for the political stability in the old continent, but the jump in German ZEW survey appears to have contributed to the euro performance since yesterday morning. The survey headline index bounced to 80.1 in April from 77.3 previously and now it is at its highest level since 2011.
Sterling has also performed well against the USD. It currently trades at 1.2492 ( +0.664%) with short covering probably a factor at play. UK Mar CPI came in as expected at 2.3% y/y, after rising +0.4% m/m. Food, alcohol and tobacco added to inflation while air fares and the Easter effect detracted (as they did in Europe two weeks ago). My own view is that these base effects should partially reverse next month, putting renewed upward pressure on inflation.
As for commodities, oil prices have continued to edge a little bit higher ( up 0.3%/0.4%), copper is -0.4%, but iron ore is -0.4%, steam coal is -2.2% and met coal is -5.8%.
This morning on the economic front we have UK Unemployment and Average Weekly Earnings at 9.30 am. Next we have US MBA Mortgage Applications and the Bloomberg Consumer Comfort Index at 12.00 pm and 1.30 pm respectively. Finally at 7.00 pm we have the US Monthly Budget.
Speaking today, we have the Bank of England Governor Carney at 9.30 am and the Fed’s Kaplan (voter) at 3.00 pm.
June S&P 500
My S&P plan worked very well with the market trading the whole of my buy range which put me long at an average rate of 2337 before rallying back above 2350 in what turned out to be a volatile trading session as shown by the spike in the Volatility Index which closed above 15 for the first time since last November. As three of my Index calls hit more or less at the same time I covered my long S&P position at 2339 as I wanted to keep my long Dow position. I know most members only will have two Index positions open at the same time, so yesterday which ever Index you held onto worked out fantastically well as none of my stops were thankfully hit following my buy levels getting triggered. The recovery in the US Stock markets late yesterday afternoon was helped from a tweet from US President Trump about ”major streamlining” of Dodd Frank which nudged buyers to stabilise the financial sector. I was hoping that the market would get more oversold first before rallying and so I do not expect this sell-off to be finished yet despite the overbought VIX. My own view is once this decline is over we will make new highs before the real sell-off starts at the end of this year beginning of 2018. Today I will again look to buy the S&P on any dip lower to 2340/2346 with a 2335 stop. Again I will also be an aggressive buyer on any further dip lower to 2315/2321 with a 2309 stop. With the VIX trading outside the top of its Daily Bollinger Band I still do not want to be short the S&P at this time.
Yet again the Euro traded in an extremely narrow range. I am still flat and today I will move my buy level higher to 1.0560/1.0590 with a 1.0530 stop. Despite the negative price action over the past two weeks I still do not want to be short the Euro at this time.
June Dollar Index
So far the Dollar is finding it difficult to break the key 101.40 resistance level and I am still flat. Today I will lower my sell level to 100.95/101.30 with a 101.60 tight stop.
Yesterday I wrote that ”I would expect the DAX to have a strong bounce off any test of my 12050/12105 buy level” and that is exactly what happened with the DAX after hitting my 12080 buy level rallied over 100 points. This rally saw me exit my position too early at 12120 but thankfully just as I emailed my Platinum Members the DAX spiked 30 points higher. Today I will again look to buy the DAX on any dip lower to 12090/12150 with a 12045 tight stop. Despite last week’s Downside Key Day Reversal I still do not want to be short the DAX at this time.
The FTSE is doing everything it can to not break the 7180 Head & Shoulders Neckline support. Yesterday, despite the sell-off in both the US Stock market and the DAX the FTSE refused to trade lower. Remember a market that does not go down on bad/geopolitical news has to be respected. Today I will now move my buy level higher to 7285/7310 with a 7255 tight stop. If over the coming days the FTSE sells off I will be a very aggressive buyer from 7175/7205 with a 7145 stop. The price action is telling me not to be short the FTSE at this time.
Dow Rolling Contract
Just like the S&P above, the Dow traded the whole of my 20520/20580 buy range with a 20508 low print. This move lower put me long at an average rate of 20550 before the market thankfully rallied just after 5.00 pm yesterday. This rally higher enabled me to cover my long position at 20625 and I am now flat. Yesterday’s move higher has to be respected and today I will again look to buy the Dow on any dip lower to 20530/20590 with a tight 20485 stop. With the markets closed on Friday for the Easter Holidays I do not want to be short the Dow at this time.
No change as I am still a seller on any rally higher to 163.40/163.75 with the same 164.05 stop. Given how low the Yield on the Bund is trading at below 20 basis points which is insane when you consider how strong the ZEW Survey was yesterday I still do not want to be long the Bund for this reason.
Gold Rolling Contract
When both Gold and Silver reversed lower on Friday off intra day highs at 1271 and 18.51 respectively , it was interesting that while Silver had a Downside Key Day Reversal, Gold did not have one and given the increasing geopolitical risk in the world Gold rallied strong yesterday on a safe haven rational. In the process Gold easily took out its 1265 resistance level which had held the market for the past two months before hitting an overnight high at 1280. Gold has very strong resistance at 1291 but given the rising tensions especially after the bomb attack on the Dowtmund Team bus before last night’s football match I would not sell Gold. Today I will now raise my buy level in small size to 1260/1266 with a 1253 stop.
Silver Rolling Contract.
Unfortunately I stopped myself out of my latest long 18.10 Silver position early Monday at 17.90 and I am still flat. It is interesting that in the latest Commitment of Traders Report that the net-long position size of Large Speculators (as a percentage of open interest) is now 50.1%, which is the largest since November-December 2004, when Silver declined from $8.19 to $6.30. I know Silver rallied strongly yesterday but this report concerns me. Silver needs to break and close over last Friday’s $18.51 high to negate its subsequent KDR. For these reasons I am going to stand aside in Silver until I see how this plays out. Remember we have made a lot of points on Silver so far this year and I do not want to take undue risk with a long position at this time.