How much a dollar cost? Is a song from American rapper Kendrick Lamar and apparently it is Barack Obama’s favourite song of 2015. Well, whichever way you measure it, a US Dollar costs less today than it did yesterday. The USD sell off that began early yesterday morning just before I posted, continued during the European trading session following senate Republican’s failure to push through their Healthcare Reform. In the process they have also increased concerns over Trump’s ability to implement his policy agenda. The AUD has added to its post RBA minutes gains and oil prices are stronger on reports that Saudi Arabia is considering additional export cuts.
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 46 points yesterday and is now ahead by 670 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 yesterday’s failure to push through a ‘’repeal and replace’’ Healthcare Bill, t GOP leaders were also unable to convince all their senate Republicans to just repeal Obamacare. US data releases did not help the cause either with NAHB index of homebuilder activity and sentiment dropping to its lowest reading since November (64 vs 67 exp.)
So the US Dollar is softer across the board. BBDXY and DXY are down 0.5% with the latter index now trading at a new 10 month low (94.66). Looking at the G10 leader board, softer CPI figures in the UK and dovish minutes from the Riksbank prevented GBP (-0.09%) and SEK (-0.15%) from joining the softer USD party. Meanwhile the AUD is the outstanding outperformer (+1.54%) after making further gains post its RBA minute jump yesterday.
Prior to the UK CPI release (2.6% vs 2.7% exp., core 2.4% vs 2.6% exp.) Sterling managed to record yet another new 10 month high of 1.3125, but reaction to the inflation numbers saw cable drop almost one big figure within minutes. The pair traded down to an intra-day low of 1.3006, but over the past couple of hours it has settled around 1.3040.
After trading to an overnight high of 0.7943, the AUD now trades at 0.7916. Remarks from the Minutes of the early July RBA meeting have been the main driver for AUD gains. Underlining the weak USD feeding frenzy and selective investor attention has been the decision to focus on an RBA discussion over the neutral real interest rate (where inflation is stable and economic growth at potential). The RBA concluded the neutral real cash rate had dropped from pre-GFC levels of 2.5% to around 1% currently. With a 2.5% midpoint inflation target, this suggests a neutral nominal cash rate of 3.5%, well above the current 1.5% cash rate. This drove the AUD higher and weakness in the short end of the rates markets after the Minutes. It is likely that the path to a neutral cash rate – when it begins – would be a cautious one, given elevated levels of household debt.
The AUD is now trading at a new 26 month high and given the ongoing negative USD sentiment a move above 80c looks to be just a matter of time. In recent notes I have argued that on a TWI basis the AUD is starting to look stretched. We have a couple of RBA speeches this week and for choice I think Deputy Governor Debelle’s speech on Friday could be the most interesting one. Debelle speaks on Global Influences on Domestic Monetary Policy and he may take the opportunity to emphasise the RBA is likely to be on hold for an extended period of time. He may also want to clarify the purpose of the neutral cash rate discussion as well as its take on the recent sharp AUD appreciation.
The US political turmoil also weighed on US Treasury yields with the 10y note trading down to 2.2509% (4.3bps lower I marked prices 24 hours ago, flattening the curve in the process as the 2y bond drifted 1bps to 1.3477%. Meanwhile 10y Bunds closed at 0.547%, 2.9bps lower on the day. The narrowing on the UST-Bunds differential has been a contributing factor for the move higher in the Euro, the pair traded to a 14 month high of 1.1583 before closing in New York at 1.1555.
This morning on the Economic front we have Euro-Zone Construction Output at 10.00 am. On what is a very quiet calendar, the only US data is at 1.30 pm when Housing Starts and Building Permits are released.
September S&P 500
My S&P plan worked well as idea of buying dips continues to pay dividends with the S&P trading lower shortly after the US Markets opened to my 2448 buy level before rallying to close at new all-time highs at 2459. This rally enabled me to cover my long position at 2453 and I am now flat. As you saw from today’s volatile price action the movements in the main currencies are having a direct effect on each Index. The strong Euro slammed the DAX while both the FTSE and S&P held in on the back of the weaker Pound and US Dollar respectively. With Nominal Expiration on Friday the S&P will continue to be a buy on dips despite being severely overbought. Today I will again look to buy the S&P on any dip lower to 2446/2452 with a 2451 stop. I will also raise my sell level to 2466/2473 with a 2478 stop.
EUR/USD
So far my short 1.1530 Euro position has not being stopped out at 1.1585 despite the market going close with a 1.1583 high print before we saw a late sell-off into the New York close. I am still short and I will leave my stop unchanged. If I am stopped out of this position I will again look to sell the Euro on any further rally to 1.1600/1.1640 with a 1.1670 stop. Remember the 1.1600 is strong resistance as this is the high from May 2016 before the market subsequently sold off aggressively.
September Dollar Index
My Dollar plan did not work well. The only consolidation is that most members do not trade the Dollar given the insane spread taken by the various spread betting firms. Over the past few months the Dollar has been kind to me but not yesterday. Having initially bought the Dollar at 95.15 on Friday I added to this position early yesterday morning at 94.50 for an average buy level at 94.83 before getting stopped out of this position near the low of the day at 94.30. Subsequently I emailed my Platinum Members to re-buy the Dollar again at 94.31 before exiting this trade just before the New York close for a small gain at 94.45 and I am now flat. As I have mentioned countless times over the past few days the Dollar is severely oversold having moved from a high at 103.80 on January 3rd to yesterday’s 94.26 low print. This is a huge move. The Dollar has strong support from 93.85/94.25 and today I will be a buyer in this area with a 93.55 stop.
September DAX
My DAX plan also worked well as shortly after the European Markets opened the DAX traded lower to my initial 12490 buy level before rebounding 70 points and this rally higher enabled me to cover this long position at my 12525 T/P level and I am now flat. Subsequently the DAX fell over 150 points on the strength of the Euro. There is no doubt tomorrow’s ECB Meeting and Dragi press conference promises a volatile trading session given the recent extreme moves in both the Bund and Euro. Today I will again look to buy the DAX on any dip lower to 12330/12390 with a 12285 stop which is just below the double bottom low of 12303 from under two weeks ago.
September FTSE
Frustratingly the FTSE missed my 7290 initial buy level with a 7292 low print before the market accelerated higher on the back of the weaker pound resulting from the lower UK CPI. I am still flat the market and today I will now raise my buy level slightly to 7265/7300 with a 7235 stop.
Dow Rolling Contract
While the S&P closed at a new all-time high the Dow did not, weighed down by Financial stocks after Goldman Sachs earnings disappointed. I am still flat the Dow and today I will again look to sell the Dow on any rally higher to 21670/21740 with a 21790 stop. Again if I am taken short and subsequently stopped out of this position I will be a more aggressive seller on any rally higher to 21840/21910 with a 21970 stop. Despite the positive price action I still do not want to be long the Dow at this time.
September BUND
For the third consecutive trading session the Bund has just missed my buy level before accelerating higher. This move was expected ahead of tomorrow’s crucial ECB Meeting. I am not going to chase the market higher form here and today I will only move my buy level slightly higher to 160.90/161.25 with a 160.60 stop.
Gold Rolling Contract
Both Gold and Silver rallied hard today helped by the renewed weakness in the US Dollar. I am still flat Gold and today I will now move my buy level higher to 1220/1228 with a 1213 stop.
Silver Rolling Contract
Just like the FTSE above, Silver only missed my initial 16.10 buy level with a 16.11 low print before also accelerating higher and I am still flat. Today I will now raise my buy level to 15.85/16.20 with a 15.55 stop.
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