Fed Chair Janet Yellen has reiterated her views that it is appropriate for the Fed to ‘proceed cautiously’ in raising interest rates given the current uncertain global economic and financial environment. In a speech to the Economic Club of New York, Ms Yellen argued that the need for caution was warranted because, with the Fed Funds Rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric.
To mark my 1000th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2500 for my Platinum Daily Commentary 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@tradernoble.com for details.
For anyone following my Platinum Service it made 70 points yesterday and is now ahead by 2240 points for March having made 2265 points in February and a record 3365 points in January. Since I started this service last June it has now made over 22,000 points.
Yellen, also said that the Fed needed to take into account the ‘potential fallout from recent global economic and financial developments, which has been marked by bouts of turbulence since the turn of the year’. On this point she noted that the recent decline in market expectations for interest rate increases effectively worked as an ‘automatic stabilizer’, cushioning the US economy from these turbulences. As for risks to the outlook, the Fed Chair highlighted China’s slowing growth and commodity prices, particularly oil. Noting that further declines in oil could have ‘adverse’ effects on the global economy.
Yellen’s cautious approach has particularly dwarfed the recent hawkish message from other speakers. The Fed Chair has now made it clear that she is happy to take the risk of higher inflation in exchange for a more certain growth outlook.
The Fed Chair’s dovish remarks have yielded a positive reaction from risk assets. Yesterday the US Treasury Yields were already moving lower in line with the decline in oil prices, but the expectation of lower rates for longer provided an added boost to the rally. US equity Indices erased earlier losses and ended the day up between 0.5% to 1.4%. The US Treasury curve bull steepened with 2yr and 5yr US Treasury Yields rallying between 7 and 9bps.
In currencies, the US Dollar is weaker across the board with the DXY Index closing down 1% on the day and over 3.1% on the Month. The NZD is the G10 outperformer closing up 2% while the Yen closed 0.75% higher which knocked the Nikkei this morning as it closed 1.3% lower at just under 16,900.
In commodities Gold Silver and Oil recovered from earlier losses on the back of the weakening Dollar.
This morning on the economic front we just had the release of German CPI for the Saxony which came in much stronger than expected at +0.8% which is knocking the Bund lower as I write this commentary. At 9.00 am we have the Euro-Zone Business Climate while at 12.00 pm we have the overall German CPI. Finally from the US we have the ADP Employment Change and this number will be closely watched ahead of Friday’s Non Farm Payrolls.
June S&P 500
Yesterday was a very unlucky trading session for me as regards the S&P as the market missed my 2018 buy level with a 2018.75 low print before rallying over 35 Handles so far to 2055 this morning. Yesterday’s turnaround in the S&P generated a significant upside Key Day Reversal and after the S&P had rallied initially to my 2041.50 average sell level I emailed my Platinum Members to exit any short position at 2044.50 due to this reversal and thankfully I am still flat. The last six weeks have again proved how difficult it is to be short the market as the Central Banks will do whatever they have to in order to make sure these stock markets do not fall given the amount of QE invested in them over the preceding few years. Despite the fact that Inflation is clearly picking up in the US and as shown so far this morning with the Saxony Regional print in Germany that the Central Banks are now playing with fire. We have little or no growth yet the the multiples in the stock market are near historic highs despite the lack of growth meaning when this stock market eventually bursts it could be catastrophic. In my opinion Yellen does not know what she is doing and it is clear over the past few weeks that the comments from the other main Fed Members disagree with her policies. This morning given the large ‘Gap’ higher from last night’s Chicago close I will look to go short from 2065/2071 with a 2076 stop. I have to respect yesterday’s upside Key Day Reversal and today I will be a buyer on any dip lower to 2040/2046 with a 2035 stop.
EUR/USD
The price action continues to tell me to keep buy the dip in the Euro especially after the series of upside Key Day/Week Reversals since the ECB Meeting on December 3 and again earlier this month. ECB President Dragi must be going mad this morning with the Euro trading back over 1.13. Unfortunately after I posted yesterday the Euro just missed my 1.1150 buy level with a 1.1169 low print and I am still flat. Today I will raise my buy level to 1.1255/1.1285 with a 1.1225 stop. The Euro has very strong resistance at 1.1420 and today I will be a small seller on any further rally to 1.1410/1.1450 with a 1.1480 stop.
June Dollar Index
I am still flat the Dollar and today I will lower my sell level to 95.30/95.60 with a 95.90 stop.
June DAX
As expected the DAX is now rallying back over 10,000 as the price action continues to tell me to keep buying the dip and despite the stronger Euro it is only a matter of time before we take out the key resistance at 10100/10200. Yesterday my DAX plan worked well with the market trading lower to my 9860 buy level before having a nice rally which enabled me to cover this position at my revised 9905 T/P level and I am now flat. Today I will again look to buy the DAX on any dip lower to 9930/9990 with a 9875 stop. Naturally I do not want to be short the DAX at this time.
June FTSE
My FTSE plan worked well with the market trading lower to my average buy level at 6035. Subsequently the market has rallied hard to a 6135 high print so far which has enabled me to cover this position too early at 6065 and I am still flat. Today I will again look to buy the FTSE on any dip lower to 6060/6090 with a 6025 stop.
Dow Rolling Contract
This morning the Dow has finally hit the top of my sell range at 17690. I am still short and I will leave my stop unchanged at 17750. If I am stopped out of this position I will be a more aggressive seller in front of 17840 with a 17900 stop. Despite the positive price action I do not want to be long the Dow at this time.
June BUND
My Bund plan worked well yesterday with the market hitting my 163.75 sell level following the comments from Yellen. This morning the Bund is selling off on the back of the Saxony inflation data and this has enabled me to cover this position at my 163.50 T/P level and I am now flat. If inflation is really starting to pick up in Germany then this Bund market is totally mispriced and today I will again look to sell the Bund on any rally higher to 163.65/163.95 with a 164.25 stop.
Gold Rolling Contract
Gold again missed my buy level as the market turned positive on Yellen while at the same time closed over its 40 day moving average. Today I will raise my buy level to 1225/1233 with a 1218 stop.
Silver Rolling Contract
No change as I am still long at 15.25 with the same 14.80 stop as Silver finally closed higher last night.
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