US President Trump’s 40 minute address to the UN, in which he described N. Korea leader Kim Jong UN as “Rocket man on a suicide mission for himself and his regime” was the highlight of one of the quietest trading sessions so far this year. FX market response to President Trump’s threat to wipe out N. Korea is to see the AUD and NZD at the top of the FX file and both the JPY and CHF – the two traditional safe havens – at or close to the bottom. Treasury yields are fractionally higher, 10yr yields now at the highest level in just over a month at 2.24%, despite which the US Dollar is softer in Index terms (e.g. the narrow DXY -0.25%). As has been the case of late, this is more a function of idiosyncratic gains for some other currencies than a market judgement on the dollar itself.
To mark my 1425th 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 if interested in this offer can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service none of my calls got hit yesterday and I am still ahead by 235 points for September, having made 1560 points in August, 1096 in July, 1023 in June, 1076 in May, 1375 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.
Neither the Australian or New Zealand Dollar figure in the DXY, but GBP/USD has pushed further ahead as markets continue to lift the odds on a November Bank of England tightening (now 63%). Meanwhile EUR/USD has more than recovered from an intra-day drop after another Reuters ECB source story. This one cites divisions within the Governing Council over how definitive the ECB should be about putting an end-date on QE purchases, whether following the October 26th meeting or mid-December.
Concerns over the strength of the Euro around $1.20 is evidently still troubling some members – who seem to view strength as largely a product of US Dollar weakness rather than Euro-Zone economic strength – to the point where they contend the ECB should keep its commitment to ongoing bond buying open-ended, albeit presumably at lower levels than now. As for NZD gains, again no reason other than buoyant risk sentiment (US stocks are up again, VIX still hugging the 10 level). Ditto AUD, which has climbed back onto an 0.80 handle once more (high of 0.8046).
Yesterday’s September RBA Board minutes didn’t really resonate, though the upbeat message on the labour market and absence of any dialling up of concerns about the strengthening of the AUD this year, were ‘non-negatives’. The RBA did though note in its ‘special subject’ discussion on China that it does not see the steel sector providing much if any additional support for iron ore demand as excess capacity is further reduced. Whether related or not, iron ore is off $2.91 overnight to $68.85 for the 62% fines China import benchmark – the first time below $70 since late July. Other metals prices are narrowly mixed (nickel down but copper and aluminium up, while gold is $3 higher at $1,311).
Meanwhile Economic Data did not have much impact for yesterday’s trading. US Housing Starts fell 0.8% against an expected 1.7% rise but an upwards revision to July meant the level was actually better than expected. The German ZEW indicator was much stronger than expected, up to 17 from 10 and initially Euro-supportive .
This morning on the Economic Front we already had the release of German PPI which printed +0.2 versus +0.1 expected. At 9.30 am we have UK Retail Sales and this is followed at 3.00 pm by US Existing Home Sales. Finally at 7.00 pm we have the FOMC Rate Announcement followed by Fed President Yellen’s press conference at 7.30 pm.
Academic as they are, the keenest point of focus is on what if anything the Fed does with its ‘dot plot’ summary of individual FOMC members forecasts for the appropriate Fed Funds rate at end 2017, 2018 and 2019, 2020 (latter for the first time) and the ‘long term’. I do not expect to see any change to the median dot for 2017 (one further rise this year) but which Fed chair Yellen would then doubtless stress in her press conference is dependent on evidence of inflation pressures picking up between now and the December FOMC meeting. I do not see the 2018 median dot changing either (currently showing 3 further rate rise next year), in which respect I would note that for both 2017 and 2018, it will require four FOMC members to lower their individual dots to produce a fall in the median. A few will likely lower theirs, but not enough to lower the median. Further out (2019 and beyond) we could see a lowering, given the hurdle for shift down is lower (e.g. just two members needed to get a lower 2019 dot). If some members do shift down but not enough to lower the median 2017 and 2018 dots, I would expect Bond Yields to rise and the US Dollar to rally, but with gains tempered by claims that this a ‘dovish’ no change. We should get a firm date for the commencement of Fed balance sheet unwind (likely to be within a few weeks at most) and where the FOMC’s guidance in June is for a cap in the run-off pace of $6bn per month in US Treasuries and $4bn in MBS, stepped up in $4-6bn increments every 3 months, until monthly caps reach $30bn per month in Treasuries and $20bn per month in MBS. So anything different from this will be a surprise.
December S&P 500
As mentioned in my Economic Commentary above, yesterday was the quietest trading session in many years with the S&P trading in just a 5 Handle range as the market went on hold early ahead of the FOMC this evening. I am still flat the S&P and have been since I was stopped out of my short position at 2483 last Monday week. Today I will leave my buy level unchanged from 2488/2494 with the same 2483 stop. We still have the large ‘’Open Gap’’ from 2461/2473 in the December Contract and if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer form 2461/2467 with a 2456 stop. My only interest in selling the S&P is still on a rally higher to 2516/2523 with the same 2528 stop.
EUR/USD
Unfortunately the Euro just missed 1.1935 buy level with a 1.1953 low print before rallying as expected again over 1.20. I must say I am getting more and more bullish of the Euro with the possibility of a move higher to 1.30 over the coming months now a realistic prospect. If the Fed are anyway dovish this evening then this Euro will quickly rally to the recent previous high at 1.2092 ahead of key resistance at 1.2150. Today I will raise my buy level slightly to 1.1910/1.1950 with a 1.1875 stop. I still do not want to be short the Euro at this time.
December Dollar Index
I am still flat the Dollar and will now lower my buy level slightly to 90.60/91.00 with a 90.30 tight stop which is just below the key 90.50 support level. A break and close below 90.50 for 1/3 weeks opens up the possibility of an acceleration lower to the mid-80s over the coming months.
December DAX
The move back above 1.20 sees the DAX struggle this morning. I am still flat the market and today I will leave my buy level unchanged from 12420/12475 with the same 12380 stop. Despite the DAX trading overbought I still do not want to be short the market at this time.
December FTSE
The renewed weakness in Sterling saw the FTSE try to stabilise after its previous loses since last Thursday following the announcement that the Bank of England might hike rates sooner than expected. I am still flat and today I will raise my buy level slightly to 7150/7185 with a 7120 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 7060/7095 with a 7020 stop.
Dow Rolling Contract
There is no doubt that the weakness in the US Dollar is helping the Dow to make new all-time highs nearly every day. Yesterday was the 41st new high for the Dow so far this year. However despite the Dow making this new high the McClellan Oscillator fell to +93 from Monday’s +113 close. One Index that I keep a very close eye on is the Fear & Greed Index which is now trading over 80. Any reading over 80 is Extreme Greed and the two times that we have been above this level this year has led to a sharp fall in the US Indices. I am still short in tiny size at 22030 and today I will only add to this position on any further move higher to 22430/22490 with a 22540 stop. If I am taken short at this second level I will then move my T/P level higher to 22230. Over the coming days if we do see a sell-off in the Dow I will be an aggressive buyer from 21850/21960 with a 21780 stop.
December BUND
No change as I am still a buyer on any dip lower to 160.15/160.55 with a 159.90 stop. My only interest in selling the Bund is still on a rally higher to 161.65/162.00 with a 162.30 stop.
Gold Rolling Contract
Gold is trading higher this morning following Trump’s UN speech yesterday. I still do not trust this market given the Commitment of Traders Report mentioned in yesterday’s commentary and for this reason I will leave my buy level unchanged from 1275/1283 with a 1268 stop. I know this range is highly unlikely to be challenged but I am not going to chase Gold higher. Everyone I talk to is long Gold which is another warning not to chase this market higher.
Silver Rolling Contract
No change as I am still a buyer on any dip lower to 16.60/16.85 with a 16.30 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 15.95/16.25 with a 15.60 stop.
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