After initially trading in and out of positive territory, US equities have closed higher recovering some of the sharp losses incurred during the previous trading session. More Money Problems is still an issue for Amazon, but a late Bloomberg report helped sentiment within the tech sector noting the White House is not actively looking to challenge Amazon’s business. Meanwhile the Canadian Dollar has led a commodity linked currencies outperformance against the US Dollar while safe haven assets such as the Japanese Yen, Gold and US Treasuries have underperformed amid the improvement in risk sentiment.
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After a choppy start to yesterday’s trading session, US equities recorded sharp gains in the last couple of hours of trading with all sectors in the S&P 500 closing in positive territory. Gains were led by energy, health care and materials sectors, although the recovery in the technology sector was a big factor for the turn in sentiment. While regulatory risk and question marks on business models remain big concerns within the technology sector, the above mentioned Bloomberg report appears to have contributed to the turn in tech sentiment. The S&P 500 ended the day 1.26% higher, recovering just over half of the losses recorded on the previous day.
In a somewhat delayed fashion, Monday’s news that the US is aiming for a preliminary NAFTA deal at a summit in Peru next week has helped propelled the CAD to the top of the G10 leader board. The Lonnie is up 0.83% and is currently flirting with a move sub 1.28. The improvement in risk sentiment along with a recovery in commodity prices has also helped other commodity link currencies outperformed the USD. The AUD (0.29%) and NZD (0.60%) are both up over the past 24hrs, however both currencies remain contained within their recent trading ranges.
After briefly trading above the 77c mark, the AUD currently trades at 0.7684. Yesterday the RBA policy announcement was a non-event as expected, the Bank is still waiting for some further progress on unemployment reduction, a process which is expected to be gradual. Meanwhile NZD currently trades at 0.7256, on the upper half of its recent 0.7150/0.73 range. The latest GDT dairy auction showed average prices falling by 0.6%, in line with expectations. It was the fourth consecutive fall in a row, although the reduction in prices has been modest against the prior ramp up earlier this year. Whole milk powder prices rose by 1.6%.
Unsurprisingly the improvement in risk sentiment has pushed JPY to the bottom of the G10 leader board. USD/JPY now trades at 106.61, up almost one big figure relative to yesterday’s opening levels.
Recovering in equities and better than expected US Auto sales have combined to push US Treasury yields higher, bear steepening the curve. The 2y rate is up 3.2bps at 2.28% and the 10y tenor is up 5 bps to 2.775%. Earlier in the session 10y bunds and 10y gilts closed essentially unchanged at 0.50% and 1.359% respectively.
As for commodities, metallurgical coal is the outstanding outperformer, up 5.4%, but iron ore is the big loser, down almost 3%. Gold (-0.74%) also lost a bit of ground amid the improvement in risk sentiment while oil and copper prices closed almost 1% higher.
In other news, current regional Fed President Williams will replace the NY Fed’s Dudley from mid-June. This will give Williams a permanent vote on the FOMC. He is considered centrist and he currently favours the consensus view of three or four rate hikes for 2018. He is well known for his views of ‘’R’’, or the neutral interest rate, which he believes has fallen substantially since the Global Financial Crisis and may stay low.
This morning on the Economic Front we have UK Construction PMI at 9.30 am and this is followed at 10.00 am by Euro-Zone Unemployment and CPI. At 1.00 pm we have MBA Mortgage Applications and this is followed at 1.15 pm by the ADP Employment Change which will be closely watched by the market for any clues on Friday’s Non-Farm Payrolls. Next we have the Markit Services/Composite PMI at 2.45 pm. Finally at 3.00 pm we have Durable Goods and ISM Non-Manufacturing ISM.
Meanwhile the Fed’s Bullard will speak on the US Economy and Monetary Policy at 2.45 pm, while later at 4.00 pm the Fed’s Mester speaks on Diversity in Economics.
June S&P 500
It took a while but finally on the Amazon news the S&P rallied from a price of 2580 to 2618 in one large blue candle. This move higher saw the market hit my initial 2610 sell level before selling off to my 2603 T/P level on the news that the Amazon story being denied. It is amazing what the market will do to get the S&P to close above the key 200 Day Moving Average as this technical average is probably the most important of all technical signals. The move higher saw the S&P close nearly 60 Handles higher than the 2554 low recorded late Monday and proves again how difficult it is to be short any US Indices for any length of time before your profit evaporates. Today I will again look to sell the S&P on any further gain to 2629/2642 with a 2651 stop. I have to respect the price action in the S&P from late yesterday and I will now raise my buy level to 2584/2594 with a 2578 tight stop.
EUR/USD
The Euro spent most of the past 24 hours trading in a sideways to lower price level as the market looks to break the key 1.2230/1.2260 support level. I am still flat and today I will now lower my sell level to 1.2350/1.2390 with a 1.2425 stop. I will also lower my buy level to 1.2145/1.2185 with a 1.2115 stop.
June Dollar Index
My Dollar plan worked well with the Dollar trading lower to my 89.55 buy level shortly after the European Markets opened yesterday morning before rallying to my 89.85 T/P level and I am now flat. I still believe the Dollar to be a buy on dips given how severely oversold we have gotten over the past few weeks and today will again be a buyer on any dip lower to 89.20/89.60 with a 88.90 stop.
June DAX
The DAX continues to ignore the wild fluctuations in the US Markets holding the key 12750/12820 support level. I am still flat and today I will now raise my buy level to 12850/12910 with a 12810 stop. I still do not want to be short the DAX at this time.
June FTSE
Just like the DAX above the FTSE never came close to my buy range as the market tries to build value above the key 6750 support level. Today I will now raise my buy range to 6840/6890 with a 6810 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
Thankfully we had no sell level in the Dow yesterday especially with the market now trading 700 points higher than Monday’s low print. In light of this aggressive snap back yesterday in the Dow I will now raise my buy level to 23630/23785 with a 12570 stop. I still do not want to be short the Dow at this time.
June NASDAQ
Unfortunately the NASDAQ just missed my 6310 buy level with a 6350 low print before rallying into the close on the Amazon news. The NASDAQ has strong resistance from 6580/6640 and today I will be a seller on any rally to this area with a 6685 tight stop. I will also raise my buy level slightly to 6310/6370 with a 6250 wider stop.
June BUND
I do not want to chase this insane rally higher in the Bund at this time and I will leave my buy level unchanged from 158.30/158.70 with the same 156.95 stop. The Bund has huge resistance from 160.10/160.50 and today I will be a seller in this area with a 160.85 stop.
Gold Rolling Contract
As I am back long Silver I will now lower my Gold buy level to 1310/1319 with a 1303 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer in front of 1295 with a 1285 stop.
Silver Rolling Contract
Silver traded lower to my 16.45 buy level. I am still long and will only add to this position on any move lower to 16.15 with a higher 15.85 stop. I will now lower my T/P level on this position to 16.60.
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