Ahead of tomorrow’s UK EU Referendum, Fed Chair Janet Yellen’s Testimony to the Senate Banking Committee was the second big event of the week. Unsurprisingly, however we got a similar message to the one we got from last week’s FOMC. Ms Yellen still believes economic developments will lead to a gradual tightening in monetary policy, but recent data releases have reinforced the case for moving with caution. The Fed Chair again declined to provide any specific timing on future rate hikes and repeated her warning not to focus on one or two payroll reports. She also noted that wages ‘may finally be picking up’.
To mark my 1100th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2500 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 please email me on bryan@tradrrnoble.com for details.
For anyone following my Platinum Service it made 50 points yesterday and is now ahead by 1120 points for June. The previous three months saw gains of 1532, 2175 and 2265 points respectively. Since I started this service over 12 months ago it has averaged a monthly gain of 2200 points.
At the margin Yellen appeared to be a bit more cautious than before. While July hike remains a statistical possibility, it seems more likely the Fed now wants to see several data releases to convince themselves the May Employment Report was just noise. I still expect two Fed Hikes this year albeit with clear risk that we get no more than one, while all bets are off if the UK votes to leave the EU tomorrow.
While still under a light trading environment, risk assets had another positive trading session with Yellen’s Testimony seemingly providing a small uptick in risk appetite. European equities closed higher for a third consecutive day and US equities notched up a second straight day of gains with energy leading the way. The US Dollar is modestly stronger and core Global Yields are mostly a little bit higher.
The AUD and NZD have managed to hold their ground while most other currencies underperformed the US Dollar. The Yen is the biggest underperformer against the US Dollar, losing 0.9% with USD/JPY trading at 104.80 having briefly broken 104 in yesterday’s trading session.
ECB President Dragi was also speaking yesterday. Addressing the European Parliament, Dragi reiterated his willingness to act in order to boost inflation, noting that inflation dynamics in the Euro area remain ‘rather subdued’ even as economic recovery ‘gained momentum at the start of the year’. Dragi’s comments contributed to the weakness in the Euro yesterday with the EUR/USD falling 0.5% to close at 1.1260.
Sterling continues to trade around the UK EU Referendum headlines. After trading as high as 1.4783 GBP/USD lost some ground falling 0.5% following the latest IG/Survation poll which put ‘Remain’ at 44%. Sterling appears to be taken a breather after climbing almost five big figures since last Thursday.
Looking at the data releases, Germany’s ZEW Survey shrugged off Brexit fears with both Current and Expectations reading printing at much better than expected levels. Investor Expectations for June came in at 19.2 versus 4.8 expected and the Current Conditions Index printed 54.5 versus 53 expected.
We have no data releases of note this morning. At 2.00 pm we have Euro-Zone Consumer Confidence. This is followed at 3.00 pm by US Existing Home Sales. Next we have Fed Chair Yellen testifying to the House Financial Services Panel. At 7.30 pm Fed Governor Powell will give introductory remarks at a panel in New York.
September S&P 500
The S&P traded in a narrow range yesterday as the market consolidated its gains from Monday. We still have a large ‘Open Gap’ from last Friday’s Chicago close at 2059 to Monday’s day session low at 2071.25 and I would be a very aggressive buyer the first time we test this gap especially if the market trades anywhere near 2060. With Yellen giving her second testimony this afternoon it is very difficult to be short the market especially with the EU Referendum vote tomorrow. I am still flat the S&P and today I will again use any dip lower to 2065/2071 to buy the market with a 2058 wider stop. I still do not want to be short any equity market ahead of the ‘Brexit’ vote tomorrow as a positive vote which I believe is now a certainty will see all equity markets trade higher at least initially.
EUR/USD
My Euro plan did not work out yesterday following comments from ECB President Dragi to the EU Parliament. Shortly after the Euro traded lower to my average 1.1290 buy level I was stopped out of this position for a small loss at 1.1255 and I am now flat. It is incredible how little volatility we are experiencing in the Euro which has been stuck in the same 8 big figure range for over 14 months. Remember a break and close over 1.1620 will be at least short-term positive. I expected given how indecisive and dovish Yellen was in her testimony yesterday that the US Dollar would weaken and not strengthen. Today I will again look to buy the Euro on any dip lower to 1.1160 1.1210 with a 1.1120 wider stop which is just below the 1.1125 print made last Thursday.
September Dollar Index
The Dollar traded higher to my 94.20 sell level shortly before the US Markets closed last night. I am still short and today I will now lower my stop to 94.70 on this position.
September DAX
The DAX which fell 1000 points in a week to last Thursday has since rallied over 720 points of this sell-off in just three days which again shows that you can only be short equity markets for a few hours before buyers return. I am still flat the DAX and today I will now raise my buy level to 9890/9950 with a 9840 stop. Despite the huge rally over the past few days my only interest in selling the DAX is on a rally higher to 10180/10240 with a 10280 stop.
September FTSE
My long 6110 FTSE position finally worked out yesterday after a late rally just before the close. Initially the FTSE struggled after I posted before finally getting some legs in the afternoon which saw the market close at 6200. This rally enabled me to cover my position at my 6170 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 6130/6160 with a 6085 stop. Given the expected positive ‘Brexit’ vote tomorrow I still do not want to be short the market at this time.
Dow Rolling Contract
The Dow just missed my 17790 buy level twice before having nice rallies and I am still flat. Today I will lower my buy level slightly to 17690/17750 with a 17640 stop. I still do not want to be short the Dow at this time.
September BUND
I am still flat the Bund and given the extent of the move lower from the 165.68 new all-time high made last Thursday I will now look to go short from 164.80/165.10 with a 165.35 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller from 165.55/165.85 with a 166.10 stop. I will also leave my buy level unchanged at 163.50/163.80 with a 163.25 tight stop.
Gold Rolling Contract
Gold continues to trade heavy since it made its $1316 high last week with the market eventually hitting my 1266 buy level yesterday afternoon. As I am already long Silver I was not comfortable in going long Gold and I emailed my Platinum Members to exit this position at 1268.50 before thankfully the market rallied to 1271 after I sent the email and I am now flat. Gold has stronger support at 1250 and today I will again look to buy Gold on any dip lower to 1247/1254 with a 1241 stop.
Silver Rolling Contract
No change as I am still long Silver form last week at 17.45 with the same 16.95 stop. Unfortunately Silver is also trading heavy and I will use any rally from here to 17.50 to cut this position.
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