US and European equities have edged higher, recovering some of Monday’s tech led loses, but Facebook continues to lose friends. Ahead of the FOMC later his evening, the US Dollar is a little bit stronger across the board and US Treasury yields are also a couple of bps higher. US and EU equities have recovered some of their tech led loses with the energy sector leading the way. Oil prices jumped yesterday ( WTI +2.16% and Brent 1.94%) boosting energy shares after reports that OPEC believes the global crude market will come into balance by the end of September, sooner than previously forecasts. Meanwhile, Facebook shares declined for a second consecutive day on the back of reports that several US Congress committees are probing whether Facebook breached the terms of privacy laws. The S&P 500 closed +0.15%, NASDAQ was +0.27% and the Dow +0.47%.
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The US Dollar is stronger against most currencies with NZD (-0.84%) and EUR (-0.70%) amongst the big underperformers while CAD is unchanged and at the top of the G10 leader board, boosted by the jump in oil prices. In index terms the USD is up 0.63% when looking at DXY and BBDXY is up 0.35%. Ahead of the FOMC, both Indices are now closer to the upper edge of their ranges held since the start of the year.
Higher US Treasury Yields (up around 2.5bps across the curve) was one factor helping the USD and after Monday’s Washington post report that President Trump plans to unveil a package of $60bn in annual tariffs against China, aiming to protect US intellectual property and create more American jobs, an amicable reply from China probably also helped sentiment and the move higher in UST yields. Premier Li said that China wants to avoid a trade war and added that the government plans to further open the manufacturing sector and it will not force foreign companies to transfer technology to domestic ones.
The Australian Dollar was back below the 77c mark with a low of 0.7680 but has since recovered in the last couple of hours as US Dollar weakness resumes. Yesterday the RBA Minutes did not have a lasting effect on the currency with the RBA reiterating its ‘’gradual progress’’ mantra, while highlighting global growth momentum and positive signs on the outlook for wages (and the labour market). The currency traded to an overnight high of 0.7720, but then it was overwhelmed by the broad recovery in the USD. AUD now trades at 0.7701 with the uptrend line held since early 2016 now well in sight. The trend line currently suggests a break below 0.7598 opens the possibility for an easy passage towards 75c. The FOMC meeting will be important for the USD and both AUD and NZD look vulnerable to a big move lower if the Fed delivers a hawkish message (see more below).
Sterling has given back about half of yesterday’s gains with softer than expected inflation data easing concerns of an imminent hike by the Bank of England. Yesterday both UK core and headline CPIs readings printed 0.1% below market expectations. That said, the wage data this morning will be more important ahead of the BoE’s Meeeting tomorrow. Cable now trades just above the 1.40 mark and is one of the best G10 performers, down just 0.10% against the USD.
Looking at commodities, aside from oil, copper has had another down day (-1.36%) and iron ore is down 0.29% while the LMEX index is off 1.12%.
And in other news, the G20 meeting of Finance Ministers and Central Bankers ended with the communique highlighting the importance of trade as protectionism looms, adding in the comment ‘’We are working to strengthen contribution of trade to our economies’’.
This morning on the Economic Front we have UK Unemployment Rate, Average Earnings and the PSNCR at 9.30 am and this is followed at 11.00 am by the US MBA Mortgage Application Rate and the UK CBI Trends. At 12.30 pm we have US Current Account, followed by Existing Home Sales at 2.00 pm. Finally we have the FOMC Statement at 6.00 pm and the Fed Chair Powell press conference at 6.30 pm. My Sense is that the Fed probably will not lift its 2018 dots enough to move the (median) dial from 3 to 4 hikes but will almost certainly move the 2019 dots up enough to shift the median from 2 to 3 hikes, there is also a low bar for an uplift in the 2020 median dot. This should on reflection if not immediately – support the US Dollar and further pressure the Euro. The press conference is also Fed Chair Powell’s first, the market will be closely watching for clues about the outlook for the economy, inflation and bias for more hikes, I think Powell will sound upbeat on the outlook, setting up the stage for the announcement of a 4th hike later in the year.
June S&P 500
What I expected to happen on Monday finally happened yesterday with the US Markets going on hold ahead of this evening’s FOMC rate announcement. The Fed Funds Rate is currently 1.50%. The Yield on 3-month US T-Bills is currently 1.76% and the Yield on 6-month T-Bills is currently 1.96%. Since the Fed follows the market, and since the market yield is trading above the Fed Funds rate, the Fed will raise the Funds Rate this evening. I am expecting an increase surrounding this announcement especially after Powell starts his press conference. I am still flat the S&P and today I will leave raise my buy level slightly to 2695/2705 with a 2688 stop. The S&P has strong resistance from 2744/2754 and today I will be a seller in this area with a 2760 tight stop. The S&P needs to break and close over 2750 for the market to continue to move higher.
EUR/USD
The Euro traded the whole of yesterday’s buy range for an average buy level at 1.2270. Although we are back above the key 1.2255 support level I want to be flat going into the FOMC and I have now exited this long position for a small gain at 1.2275 and I am now flat. The next support level for the Euro is at 1.2140/1.2180 and today I will be a buyer in this area with a 1.2110 stop. My only interest in selling the Euro is on a rally higher to 1.2360/1.2400 with a 1.2435 stop.
June Dollar Index
My latest 89.40 Dollar position worked well with the market rallying to my 89.60 T/P level and I am now flat. I still believe that the Dollar will rally to at least 94.00 over the coming weeks and today I will again look to buy the market on any dip lower to 89.10/89.50 with a 88.80 stop.
June DAX
The DAX rallied soon after I posted yesterday morning within the same range that has prevailed for the past few weeks and I am still flat. Today I will now raise my buy level to 12170/12230 with a 12120 stop. I still do not want to be short the market at this time.
June FTSE
I am still flat the FTSE which continues to underperform the other main Indices. Today I will lower my buy level slightly to 6890/6930 with a 6860 tight stop. I do not want to be short the FTSE ahead of the FOMC rate announcement this evening.
Dow Rolling Contract
Yesterday the Dow recovered 350 points of Monday’s losses as yet again the buy the dip returns. It is extremely difficult to be short the Dow even though I expect the Dow to have a serious move lower over the coming months given how over stretched and overvalued this market is trading. Today I will leave my buy level unchanged from 24380/24500 with the same 24310 stop. There is an important 16 month trend line at 24440 and this level should hold an initial test. The Dow has strong resistance from 24950/25050 and today I will raise my sell level to this area with a 25120 stop.
June NASDAQ
No change as I am still a buyer on any dip lower to 6785/6830 with a 6745 stop. I will also leave my sell range unchanged from 6990/7040 with a 7070 stop.
June BUND
I am still flat the Bund and today I will now lower my buy level slightly to 157.10/157.50 with a 156.80 stop. Despite the insane yield on the Bund I do not want to be short the market at this time.
Gold Rolling Contract
I am still flat Gold which is trying to hold the key 1290/1300 support level which as I mentioned yesterday is where the 200 Day Moving Average comes in. I am not going to chase this market higher and I will leave my buy level unchanged from 1293/1303 with the same 1286 stop.
Silver Rolling Contract
I have been bullish of Silver for most of the past three years but the price action in this market over the past few weeks has me concerned. As mentioned yesterday Silver has strong support at 16.09 which if broken could well see a test of long-term support at 15.55. With the low of yesterday at 16.08 just missing my 16.05 stop I emailed my Platinum Members to exit our long 16.45 Silver position at 16.30 and this was filled in the last hour and I am now flat. Today I will again look to buy Silver on any dip lower to 15.45/15.85 with a 15.10 stop.
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