Donald Trump Junior’s Russian email saga provided a bit of volatility to the yesterday’s afternoon trading session. Trump’s eldest son released an email chain in which he said he would welcome the possibility of Russia helping his father’s campaign via compromising information about Hillary Clinton. The S&P500 index sold off on the news, falling more than 0.5%, but it recovered almost all of it’s loses in the second half of the Chicago session. The email news triggered a rally in US Treasuries and the US dollar was weaker against most currencies. In other news, Fed Governor Brainard reiterated her views for a cautious approach on future rate hikes and noted that she would ‘’soon’’ be ready to support the Fed’s plan to reduce its balance sheet. How soon remains one of the key questions for markets.
To mark my 1375th 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 132 points yesterday and is now ahead by 488 points for July, having made 1023 points in June, 1071 in May, 1376 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 1700 points.
After the initial risk off move, courtesy of Trump Junior’s email trail, US equities ended the day little changed with technology shares the highlight helping the NASDAQ closed the day +0.29%. On the other side of the Atlantic, Europe was unable to follow the positive lead from Asia with all major European equity indices down between -0.20% and 0.78% on the day.
On first impressions reaction to Trump Junior’s email appears to have had a more lasting effect on US Treasury yields and the USD. Prior to the email chain release, 10y UST yields were trading at 2.39% with the intraday chart showing a steady decline towards 2.36% over the course of the session. Flows, a strong 3 year auction and Brainard’s cautious take on future rate hikes also contributed to the move lower in yields.
The intraday chart for the USD index (DXY) also shows a steady decline throughout the day session (-0.55%), largely reflecting the outperformance of US rates relative to Europe (10y Bunds ended the day 1bps higher at 0.546%) and also a recovery in commodity link currencies aided by gains in oil (+2%/3%), iron ore (+2.2%) and copper 0.9%.
Looking at the G10 leader board, EUR is leading the pack, up 0.58% on the day and currently trading at 1.1460. A weekly close above 1.1450 would open the door for another leg higher for the cross. I still expect EUR to trade up towards 1.17 in Q3, thus breaking the rough 1.05-1.15 two and a half-year range amid a structural re-rating.
After trading to a low of 0.7605, the AUD has staged a decent recovery reaching an overnight high of 0.7643 and settling around 0.7640 currently. As noted above, in addition to a softer USD, commodities have had a decent trading session with iron ore up for a third consecutive day ( $65.40 ).
After coming under pressure yesterday, NZD has also managed to reverse some of its losses thanks to a softer US dollar and uplift in commodities. The kiwi traded lower yesterday amid softer card transactions data for June, followed by a soft reading for the ANZ monthly inflation gauge. This monthly data releases do not often elicit a reaction by the currency, but with speculative positions at a 4 year high, the softer data provided good cover to reduce those positions. NZD now trades at 0.7225.
Lastly as I about to press the send button, Politico reports that Cohn is said to be top candidate to replace Fed Chair Yellen. Cohn would be the first Fed chair in four decades who is not an economist. Cohn does not have a track record on monetary policy. But he is viewed as closer to Yellen’s preference for gradual rate hikes.
This morning on the Economic Front we have UK Employment and Average Earnings at 9.30 am. This is followed at 10.00 am by Euro-Zone Industrial Production. At 1.30 pm the Fed Releases Chair Yellen’s Testimony to Congress ahead of her Testimony at 3.00 pm. Finally the US Fed releases its Beige Book at 7.00 pm.
At 7.15 pm the Fed’s George speaks in Denver on the Economic Outlook.
September S&P
My S&P plan worked well yesterday with the market trading lower to my 2411 buy level before rallying 16 Handles and this rally enabled me to cover this long position at my 2416 T/P level and I am now flat. With seven Hindenburg Omen’s on the clock one of these sell-off’s is not coming back and the odds are increasing that this may well happen sooner rather than later. The latest HO means that this signal is now valid until early November. Remember the Fed has pumped $3.4 trillion into the US economy through its historic QE programmes and this is about to be unwound to the tune of $600 billion per year. This tightening is also coming as the Fed increases short-term Interest Rates. Rising rates at some point will become a deterrent to lending and borrowing. The Money Supply grows from lending and borrowing and as mentioned yesterday we are already seeing a contraction in Money Supply and this is before the QE is withdrawn. We have no wage inflation which is hard to believe when we nearly have Full Employment. In my opinion this market is on borrowed time but I am still not short yet as we do not have the sell extreme that I am looking for. Ahead of Yellen’s Testimony before the House I am going to raise my sell level to 2434/2440 with a 2445 stop. Meanwhile I will continue to look to buy the S&P on any dip lower to 2408/2414 with a 2402 stop.
EUR/USD
As the Platinum Service was making nice points yesterday I emailed my Platinum Members to raise their sell level in the Euro to 1.1450/1.1480 which subsequently saw the whole of this new range filled, thus putting me short at an average rate of 1.1465. As I was already long the Dollar Index I emailed them before the close to cover this short position for a small gain at 1.1460 and I am now flat. One reason that I covered my latest short Euro position was the fact that the Euro closed over 1.1440/1.1450 which is a 2 year trend line. The next main resistance is the May 2016 high at 1.1610. Despite the large increase in sentiment towards the Euro my only interest in selling the market today is on a rally higher to 1.1560/1.1610 with a 1.1645 stop.
September Dollar Index
In the same email that I raised my Euro sell range, I also lowered my Dollar buy level to 95.50 which was subsequently filled. I am still long and today I will now raise my stop on this position to 95.15 as I do not want to risk too many points on this trade despite the DSI reading in single digits.
September DAX
The DAX continues to trade positively despite the strength of the Euro. Thankfully we have had no sell levels in the DAX over the past few weeks and I am still flat. Today I will only raise my buy level slightly to 12295/12360 with a 12245 tight stop.
September FTSE
Despite the continued weakness in Sterling the FTSE sold off aggressively yesterday morning before re-couping some of these loses in the afternoon. The sell-off was surprising in lieu of the fact the EUR/GBP is now trading with an 89 Handle. The FTSE needs to break and close over 7375 for the bulls to regain control and today I will continue to look to sell the market on any further rally to 7345/7380 with a 7405 tight stop. I will also look to buy the market on any dip lower to 7195/7225 with a 7155 stop which is just below the May low at 7165.
Dow Rolling Contract
My Dow plan worked really well with the market trading lower to my 21290 buy level before rallying 150 points. Unfortunately I covered this position too early at my revised 21322 T/P level and I am now flat. The market will probably go on hold ahead of Yellen’s Testimony at 3.00 pm. Today I will again look to buy the Dow on any dip lower to 21270/21330 with a 21225 stop. Remember the Dow needs to break the June low at 21197 and the March 1 high at 21169 for me to turn bearish. For these reasons I still do not want to be short the Dow at this time.
September BUND
My Bund plan also worked well as shortly after the market opened at 7.00 am the Bund was trading at my 160.60 buy level before rallying before lunch to my revised 160.85 T/P level and I am now flat. The Bund is severely overbought and continues to be a buy on dips after the massive sell-off since Dragi spoke in Portugal three weeks ago. Today I will again look to buy the Bund on any dip lower to 160.20/160.55 with a 159.85 stop.
Gold Rolling Contract
No change as I am still flat. Gold has minor support at the March Low at 1195 and today I will be a small buyer on any dip to 1192/1200 with a 1186 stop.
Silver Rolling Contract
My Silver plan worked well as the market was trading at my 15.50 buy level shortly after the European Markets opened before rallying to 15.85 and this rally enabled me to cover this long position at my 15.70 revised T/P level and I am now flat. Given the single digit DSI reading for Silver I will again look to buy the market on any dip lower to 15.30/15.60 with a 14.90 stop.
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