Never underestimate the ability of markets to discount the same news twice. Or in the case of the US Dollar, the ability to ignore a relevant piece of news one day only to react with alarm to it a day or two later. So it is that on Monday, markets completely ignored comments by President-elect Trump in a Wall Street Journal interview published after Friday’s market close, in which he said “Our companies can’t compete with them (China) now because our currency is strong and it’s killing us”. A re-run of these comments yesterday morning clearly contributed to dollar weakness. To be fair, pressure on the US Dollar also stemmed from comments in the same WSJ interview (but which didn’t appear in the original report on Friday) in which Trump says, “It’s too complicated….anytime I hear border adjustment, I don’t love it….Because usually it means we’re going to get adjusted into a bad deal. That’s what happens.”
To mark my 1250th 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 bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 108 points yesterday and is now ahead by 983 points for January having made 1351 points in December. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points.
Much has been written in recent days on the potential for a border tax to have a powerful positive impact on the US Dollar. So in distancing himself from the notion, it makes some sense for the dollar to have fallen, even if Trump’s plans to impose punitive (import) taxes on firms that make stuff outside the United States with the intention of then selling into the U.S., is also potentially dollar positive.
Perhaps contributing a little to the yesterday’s FX and Interest Rate markets moves, NY Fed president Bill Dudley gave a speech and his comments came across dovish, although that is not unusual. He noted that the economy was not growing much above its sustainable long-term potential, pressures on labour market resources have been increasing, but quite slowly, and that the recent strength of the US Dollar would put downward pressure on inflation.
While we can expect what have now been dubbed ‘open mouth operations’ to be a major feature of the Trump administration – from the Twitter fingers of the President himself in particular – a more nuanced view of administration dollar policy was on show in Davos yesterday in comments from Anthony Scaramucci, named as the Director of the Office of Public Liaison and Intergovernmental affair. Scaramucci noted that while ‘we’re going to have to be careful about the rising currency’ because of the impact it can have domestically, he also noted that strong growth and a strong dollar can co-exist”.
For now, the upshot of the news flow since last Friday’s market close is that the US Dollar is weaker alongside lower US Treasury Bond yields and where 10s are some 7bps lower since last Friday’s New York close. The British Pound is the standout winner, GBP/USD adding three cents and so more than reversing Monday’s slide.
There was nothing in UK PM May’s speech yesterday afternoon to clearly counter the message derived from the weekend press reports indicating the UK would forgo seeking continued membership of the single market and customs union in order to prioritise immigration in its Brexit negotiations. The main points from her speech were:
PM May confirms recent press leaks that she is prepared for a hard, clean Brexit and is prepared to walk away if the EU wants to invoke punitive tariffs.
Assuming Article 50 is triggered in March, the ball will be in the EU’s Court, with PM May warning the EU27 against an act of economic self-harm.
FX markets like what they heard, though positioning did play a part as Sterling has it largest one day rally since 2008.
Finally expect the UK press to be deeply divided on the path ahead.
The Market did though latch on to May’s stated commitment to put a settlement agreement back to parliament. A market running very short GBP into the speech was given no fresh reason to hang on to positions and rallied accordingly as forecast in yesterday’s Daily Commentary.
This morning on the economic front we already had the release of German CPI for December which came in as expected with a 0.7% rise. This confirmation will put pressure by the Bundesbank on Dragi at tomorrow’s eagerly awaited first ECB Meeting of the year. At 9.30 am we have UK Employment Change and Average Earnings. This is followed at 10.00 am by Euro-Zone CPI. The US will release its own CPI at 1.30 pm and this is followed at 2.15 pm by Industrial Production. Finally we have the Bank of Canada Rate decision at 3.00 pm.
Fed chair Janet Yellen is scheduled to take part in a discussion at the Commonwealth Club in San Francisco but not until 8.00 pm this evening. Earlier this afternoon the Fed’s Kashkari and Kaplan will both speak on the economy.
March S&P 500
Frustratingly the S&P missed my 2257 buy level with a 2257.25 low print before rallying aggressively overnight and I am still flat. As so many of markets hit yesterday with the last been the Dow shortly after 8.00 pm I emailed my Platinum Members to exit this position in anticipation of my S&P position getting filled which unfortunately just missed and I am still flat. As I have said all month every dip is a buy until we get the Inauguration out of the way on Friday and then we will see. Trump’s acceptance speech will set the tone for the next move in the market which may well be down given the amount of good news already priced in. The S&P continues to trade up one day, down the next in a volatile fashion but is still going nowhere and this will continue until we get Friday’s Inauguration. Today I will move my buy level higher to 2252/2258 with a 2247 stop. If I am taken long I will still be an aggressive buyer on any dip lower to 2237/2243 with a 2232 stop. Remember the S&P needs to break and close below the December 30 low at 2227.75 for the market to turn at least short-term bearish. My only interest in selling the S&P is still on a rally higher to 2285/2291 with the same 2296 stop.
EUR/USD
Yesterday’s close over 1.0670 is positive with my target still a re-test of the early December high at 1.0874 which happened at the last ECB Meeting. I am still flat the Euro and today I will move my buy level sightly higher to 1.0610/1.0660 with a 1.0575 stop which is just below last Monday’s low print.
March Dollar Index
The Dollar continues to sell-off following the downside Key Week Reversal on the first week of trading in January and last week’s downside Key Day Reversal. I am still flat the Dollar and today I will now lower my sell level to 101.10/101.40 with a 101.75 stop. I will leave my buy level unchanged at 99.30/99.80 with the same 98.95 stop. It will be interesting to see if Trump continues to want a weaker Dollar in his Inauguration speech on Friday.
March DAX
Finally the DAX hit my buy level at 11425 which is the first time in over three weeks that any of my DAX calls have hit. Unfortunately I covered this position too early at my 11465 T/P level before the market rallied over 100 points more and I am still flat. Today I will leave my sell level unchanged at 11630/11680 with a 11720 tight stop. I will again look to buy the DAX on any dip lower to 11425/11475 with a 11360 wider stop. The DAX has strong support from 11380/11420 and I would expect the market to have a decent rally on any test of this area.
March FTSE
The FTSE also hit my buy level at 7155 before rallying to a 7193 high print overnight. As so many of my positions hit yesterday and the fact that I wanted to bank points when available I emailed my Platinum Members to be flat in the FTSE overnight and covered this position at my revised 7165 T/P level and I am now flat. So far the FTSE is holding its 10 year trendline at 7140/7150 and if we do break this level the market has very strong support at 7090/7110. Today with Sterling weakening after yesterday’s huge move higher I will look to buy the market on any dip lower to 7105/7140 with a 7070 stop which is just below the strong support mentioned above.
Dow Rolling Contract
My Dow plan also worked well with the market hitting my 19780 buy level before rallying to a 19860 high overnight. Unfortunately as mentioned in my S&P commentary above I covered this long position too early at 19800 and I am still flat. Despite the sell-off yesterday the McClellan Oscillator still closed in positive territory with a +19 print. However this reading should be higher given how close that we are to all-time highs and is a warning that perhaps after Friday’s Inauguration we will then run into a wall of resistance. Today I will again look to buy the Dow on any dip lower to 19720/19785 with a 19665 stop. I still do not want to be short the Dow at this time.
March BUND.
My Bund plan also worked well with the market hitting my 163.70 buy level before rallying to a 163.92 high print and this rally enabled me to cover this long position at my revised 163.88 T/P level and I am now flat. Today I will again look to buy the Bund on any dip lower to 163.15/163.50 with a 162.80 stop.
Gold Rolling Contract
Gold closed over its 100 week and 500 day Moving Average at 1200/1202 as mentioned in yesterday’s commentary. This could be significant especially with Silver also breaking to the upside. Today I will move my buy level slightly higher to 1195/1203 with a 1189 stop.
Silver Rolling Contract
Thankfully after I posted yesterday morning Silver traded below my initial 16.95 buy level with a 16.92 low print before rallying to a 17.21 high print so far. As I want to keep with my theme of banking as many points as possible for the least amount of risk I emailed my Platinum Members to exit this position at 17.15 and to re-buy on at 17.05 which happened earlier this morning and I am still long. The fact that Silver closed over 17.00 is bullish and if we can break the key 17.27 resistance level the we have the potential of a breakout to the upside. I will now leave a 16.60 stop on my latest long position.
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