In what has been a quiet past 24 hours of data releases and tweets from President Trump, the USD has been the quiet achiever amid simmering political and fiscal uncertainties in Europe, softer oil prices, flat US equities and lower US Treasury yields. Last week I wrote about my concerns that the USD (DXY Index) was looking vulnerable to a big downside move given the Index was probing below a key support level. Over the past few days, however, slowly but surely the USD has managed to crawl its way back up. To some extent, the USD has won the least ugly context as the focus appears to have shifted away from the US towards political and fiscal uncertainty in Europe. Although the 10y French-German spread were little changed, Italian, Greek and Spanish spreads to Bunds have continued to widen, not only reflecting political concerns in the EU, but also a rising anxiety on the fiscal position of southern EU countries amid their debt issuance requirement and expected reduction of ECB bond buying. This is a theme worth keeping an eye on.
To mark my 1250th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 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 can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 38 points yesterday and is now ahead by 311 points for February having made 1734 points in January, 1351 in December, 1971 in November and 1582 in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1800 points.
So the EUR is one of the underperformers, losing 0.5% against the USD while the CAD and NOK are at the bottom of the G10 leader board, down 0.64% and 0.68% respectively and dragged lower by a decline in oil prices (WTI -1.6% and Brent -1.2%). Sterling has been the only G10 currency that has managed to gain some ground against the USD, thanks to a 1.3% rally triggered by hawkish comments from a BoE policy maker. Although BoE Forbes is a known hawk, her comments that the U.K. may soon need a rate increase saw the Pound initially gain 40 pips on the headline, but the move then gathered momentum ahead of the 4pm fix.
The AUD has essentially given back all the gains post the RBA yesterday and is currently trading at 0.7620. Yesterday the RBA left the policy rate unchanged as expected, however the currency got some support by the seemingly more optimistic economic outlook by the Bank. While inflation is still expected to slowly return to target, the RBA sounded more upbeat on the labour market and also on the domestic growth outlook with the latter largely thanks to improvements in the global economy.
As for the currency, the Statement noted that “The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment”. In saying a rising exchange rate would complicate the adjustment, the RBA is still not acknowledging that on a trade weighted basis the exchange rate has been steadily appreciating since September 2015. In addition, the AUD Real trade weighted index (TWI) is back trading in the significantly overvalued zone. So unless the Real TWI overvaluation reverses soon, I think the RBA will be compelled to raise some concerns on the level of the currency. The RBA are evidently not there yet, but watch upcoming speeches with Governor Lowe the first cab off the ranks on Thursday.
Core Global Bond Yields were well supported yesterday with political and fiscal uncertainty helping 10y Bunds move lower while 10y US treasury yields found additional support from weakness in oil prices and dovish statement from Fed Kashkari (dove, voter) stressing that the Fed wasn’t meeting its inflation mandate and that accommodative policy remained appropriate while also noting that a strong USD will likely continue to put downward pressure on inflation.
This morning on the economic front we have no economic data from either the Euro-Zone or the UK. At 12.00 pm we have US MBA Mortgage Applications and this is the only American release today on what is another light economic calendar.
Meanwhile the Bank of England’s Cunliffe is due to speak in Birmingham at 1.00 pm.
March S&P 500
Initially the S&P rallied only to sell-off but this move lower held Monday’s low in another low volume trading session. The S&P looks erratic and unpredictable as far as the short term direction goes. However bulls have not lost control. The erratic nature of the market is summed up by the continuing oscillations in the McClellan Oscillator which closed with a negative print of -17 last night despite the three main US Indices closing slightly higher. My own view is that this market is shaping up for a significant sell-off especially as we have not seen any of Trump’s Tax proposals come to fruition. For now we have to be patient as we await the sell-extreme that will finally show that this market has at least put in a temporary top. My resistance level is wide still from 2300/2334 which we have not yet managed to breech. Today I will move my buy level higher to 2276/2282 with a 2271 stop. The S&P has resistance at its all-time high at 2299.50 and a break above this level targets the next resistance level at 2304/2310 where I will be a seller with a 2315 stop. The low volume shows that most traders are scared to buy and be caught long at these lofty levels, while most traders are also scared to go short given the fact that we are still in a bull market.
EUR/USD
After I posted yesterday morning the Euro which initially traded lower before turning around and following Cable higher late in the New York session. However overnight the Euro is on the defensive again after comments from the President of the Bundesbank Jens Weidmann who is also a ECB Governing member, who said that the ECB is not at the point where it can end expansionary policy. The move lower in the Euro this morning has hit my 1.0645 buy level. I am still long and I will add into this position on any move lower to 1.0610 with a 1.0585 tight stop. With Trump due to meet Japanese PM Abe later in the week I am reluctant to go short the Euro in the event that Trump again (which I expect) mentions how the strong Dollar is hurting the US economy.
March Dollar Index
My Dollar plan worked well with the market trading lower to my 100.15 buy level late in the US trading session before rallying to a 100.65 high so far this morning. However as mentioned above I was reluctant to hold my long Dollar position overnight in case we woke up to a negative tweet on the Dollar from President Trump and I emailed my Platinum Members to exit this position at 100.27 and I am now flat. Technically as mentioned in my opening paragraph the Dollar is trading better as it has made a series of higher lows over the past few trading sessions which is short term bullish after January’s Downside Key Month Reversal. Today I will again look to buy the Dollar on any dip lower to 99.95/100.30 with a 99.60 stop. The price action is still telling me not to be short the Dollar at this time.
March DAX
Unfortunately the DAX just missed my buy level after I posted yesterday morning before rallying 100 points and I am still flat. Today I will raise my buy level slightly to 11440/11500 with a 11390 stop. I am surprised how weak the DAX is trading especially with the Euro back on the defensive. However as long as the DAX can hold its key support level at 11400 then the market continues to be a buy on dips.
March FTSE
Very late in the New York session the FTSE traded lower to my 7100 buy level. The extreme daily movements in Sterling is causing the FTSE to move in opposite directions. Yesterday when Cable was trading at 1.2350 the FTSE was at the high of the day and when Cable rallied back over 1.25 the FTSE sold off to hit my buy level. As I did not want a long FTSE position overnight I covered my 7100 trade for a small gain at 7106 and I am now flat. Today I will again look to buy the market on any dip lower to 7055/7085 with a 7020 stop which is just below last week’s low print. I still do not want to be short the market at this time.
Dow Rolling Contract
My Dow plan worked well with the Dow trading to my 20150 sell level with a 20159 high print before selling off 70 points. As I had a close by sell level in the S&P which incorrectly I thought would get hit I covered my short Dow position at 20130 and I am now flat. Today I will again look to sell the Dow on any rally higher to 20160/20220 with a 20270 tight stop. Today I will again look to buy the Dow on any dip lower to 19930/19990 with a 19880 stop.
March BUND.
Unfortunately the Bund topped just shy of my 163.80 sell level with a 163.74 high print before selling off nearly 70 points and I am still flat. There is no doubt the worsening political situations in both France and Greece are putting a bid in the German Bond market. This morning the Bund is back testing the highs and I will now look to buy the Bund on any dip lower to 162.95/163.30 with a 162.65 stop. My only interest in selling the Bund is on a rally higher to 164.25/164.55 with a 164.85 tight stop.
Gold Rolling Contract
Despite the US Dollar gaining strength, Gold is still firm with the Bulls firmly in control. Today I will move my buy level higher to 1215/1222 with a 1209 stop. If the market hits my buy level I will only be a buyer in small size.
Silver Rolling Contract
I am still flat Silver and today I will raise my buy level slightly to 17.20/17.55 with a 16.80 stop.
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