The Euro is lower, pushed back by a stronger US Dollar in the wake of Fed Chairman Powell’s maiden testimony on monetary policy and the economy to Congress, yesterday afternoon to the House, with the Senate testimony coming this afternoon. US Treasury yields are a net ~4 bps higher for the session, spiking higher on hints from Powell alluding to the possibility of an increase in the median dot plots from three to four hikes this year at the upcoming 21 March Fed rate meeting.
To mark my 1525th 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 in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 203 points yesterday and is now ahead by 2169 points for February having made 879 points in January, 946 points in December, 823 points in November and 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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Powell’s prepared opening formal statement (released 90 mins before he appeared) gave an upbeat assessment of the US economy. On the outlook for policy, his statement noted that the Fed seeks to strike a path between avoiding an overheating economy and putting PCE inflation on a sustained 2% path. It has been a while since the Fed’s been speaking openly of an overheating economy and it says something about how positive (worried even from an inflation viewpoint?) the Fed is about the US economy. The Statement went on to note that some of the headwinds facing the US in the past few years (i.e. fiscal policy and foreign demand) had turned into tailwinds more recently. He said the Fed expected inflation to return to 2% and stuck to the line that ‘’gradual’’ rate rises were warranted. ‘’
As always, the path of monetary policy will depend on the economic outlook as informed by incoming data.”
There was little reaction initially to Powell’s written testimony, but US Treasury yields jumped as Powell alluded to the potential for a shift higher in the median ‘’dots’’ at the upcoming March meeting. In response to a question about the likely number of hikes for this year, Powell said that ‘’since December, what we’ve seen is continuing strength in the labor market and data that adds confidence to my view that inflation is moving back up to target, fiscal policy more accommodative, foreign demand holding strong – but I wouldn’t want to prejudge the March dot plot’’. Four Fed officials would be needed to lift their ‘’dots’’ from three to four hikes at the upcoming March meeting to lift the median expectation to four. Upcoming economic reports now take on extra significance, first with tomorrow’s January PCE deflators and Non-Farm Payrolls report on Friday for what it says about wages and inflation risks.
Other watch points at the 21 March meeting will be whether the Fed raises its estimate of the long run expected Fed Funds Rate ‘’dependent on the long run growth outlook for the economy’’ and their estimates for the full employment NAIRU rate. On the latter, the December FOMC estimated that at 4.6% against the actual rate of 4.1%, so beyond full employment as noted in Friday’s written report to Congress. Powell said that his estimate was in the low 4s. If that estimate of NAIRU is not lowered, that would signify more confidence they are beyond full employment with its attendant wage and inflation risks.
Meanwhile, it was a mixed set of reports released on the US economy. The star was the Conference Board’s Consumer Confidence report for February that shot the lights out at 130.8 (L: 124.3; F: 126.5) with a new high for this cycle and the highest since 2000. The labour net jobs plentiful index turned even more positive and was also the highest since early this century, since 2001. An indirect measure of business confidence, the US Durable Goods Orders report for January though underwhelming expectations, core orders down 0.2% after a 0.6% December decline. This was much more positive through most of last year and a slight disappointment for those looking for continued signs of lifting US productive capacity or a post-tax cut immediate boost. It has by nature been a jumpy series but it is something the Fed will be paying close attention to for not just for what it means for growth now but longer term by potentially lifting the supply side of the economy. Also released were preliminary Trade data for January seeing a higher than expected deficit (import growth outpacing export growth), unhelpful to near term growth estimates and the politics of trade. The Atlanta Fed lowered its estimate for Q1 GDPNow from 3.2% to 2.6%.
Ahead of Euro-Zone preliminary February CPI this morning, German inflation missed expectations by a tenth, coming in at 0.5%/1.2% against 0.6%/1.3%. This report put the EUR on the back foot ahead of Powell’s dollar-supportive appearance. Bundesbank President Weidman, a well-known hawk, said he wanted QE to end this year (which is no surprise). On the prospect for rate hikes, he sounded more evasive/perhaps hawkish, noting that ‘’the market has certain expectations on a possible interest-rate change in 2019, based not only on the dataset, but also on our communication, and these expectations are – I would say – not completely unrealistic’’.
This morning on the Economic Front we already had the release of German GFK Consumer Confidence which came in at 10.8 versus 10.9 expected. At 8.35 am we have German Unemployment ahead of Euro-Zone CPI at 10.00 am. This is followed at 1.30 pm by US GDP and the Chicago Purchasing Manager Survey at 2.45 pm. Finally at 3.00 pm we have Pending Home Sales and Fed Chair Powell’s Testimony to Congress.
March S&P 500
My S&P plan worked well yesterday with the market trading lower to my 2761 buy level with an initial low of 2756.50 before rallying over 15 Handles. This rally higher enabled me to cover my long position at my 2768 T/P level and I am now flat. In contrast to the previous few trading sessions the S&P sold off into the close with the market trading to an overnight low of 2738.50. For the market to stay bullish we need to close above the now key support level from 2720/2730, otherwise we are back on a sell signal with a possible move lower to 2636. We have to be nimble. Personally I still expect the market to trade higher to my 2810/2825 sell level as mentioned in yesterday’s commentary. Today I will again look to buy the S&P on any dip lower to 2727/2739 with a 2718 wider stop. I have no interest in going short the S&P unless we trade higher to my 2810/2825 target level over the coming days.
EUR/USD
The increased volatility is certainly helping my Platinum Service which has now had it best trading month in over a year. Yesterday 30 minutes before Powell’s Testimony I emailed my Platinum Members to lower any Euro buy level to 1.2240. After we traded to this level I covered this position at my revised 1.2245 T/P level and I am now flat. I still believe the Euro will eventually trade higher to my 1.27/1.29 target level before we see a more meaningful top in the market. Today the Euro has support at 1.2160 and I will now be a buyer from 1.2130/1.2165 with a 1.2095 stop.
March Dollar Index
The Dollar continues to rally as expected with the Dollar again missing my buy level before trading higher. Today I will now raise my buy level to 89.65/90.05 with a 89.30 stop.
March DAX
My DAX plan also worked well with the market trading lower to my 12440 buy level before having a nice 80 point rally and this move higher enabled me to cover this long position at my 12475 T/P level and I am now flat. With the Euro testing 1.2200 I would expect the downside for the DAX to be limited. With this in mind I will now be a buyer on any dip lower to 12290/12360 with a 12240 stop.
March FTSE
The FTSE also traded lower to my 7265 buy level before having a small rally. As I wanted to be flat ahead of Powell’s Testimony I emailed my Platinum Members to exit any long FTSE position at my revised 7278 T/P level and I am now flat. Today the FTSE has strong support from 7170/7205 and I will be a buyer here with a 7140 stop.
Dow Rolling Contract
It took a while but finally the Dow traded to my 25350 buy level overnight before rallying to my 25420 T/P level and I am now flat. As long as the Dow can hold the 24950 key resistance level then then the market can rally back above 26000. Today I will again look to buy the Dow on any dip lower to 25170/25270 with a 25095 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer in front of 25010 with a 24900 stop.
March NASDAQ
Unfortunately the NASDAQ missed my 6880 buy level a couple of times before rallying and I am still flat. Today I will lower my buy level slightly to 6795/6845 with a 6760 stop.
March BUND
Unfortunately the Bund just missed my 158.95 buy level with a 159.03 low print this morning and I am still flat. I will now raise my buy level to 158.65/159.05 with a 158.35 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold traded lower to my 1317 buy level. I am still long with a lower T/P level at 1318. I do not want to add to this position and I will now raise my stop on this trade to 1310 as I do not want to risk too many points. If I am stopped out of this position I will be a more aggressive buyer from 1292/1302 with a 1285 stop.
Silver Rolling Contract
No change as I am still long at 16.55. I will continue to add to this position on any move lower to 16.25. If my second buy level is filled I will then lower my T/P level to 16.45. Meanwhile I will leave my stop unchanged at 15.90.
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