Ease in trade and geopolitical tensions have helped risk sentiment over the past 24 hours.US and EU equities have closed in positive territory, US Treasury yields are also higher and the US Dollar is stronger, mainly driven by softness in European currencies and yen weakness with the latter declining amid a decrease in safe haven demand. NZD is a mild outperformer while AUD is a bystander.
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Market sentiment remains at the mercy of political rhetoric, the theme from yesterday’s trading session is that there are encouraging signs of an ease in tensions in Syria along with improved prospects for resolutions in trade tensions. Not only in terms of US-China trade negotiations, but also in terms of a positive outcome for NAFTA and…surprise, surprise, even TPP gets a mention!
President Donald Trump said that he will be meeting national security advisers later today to discuss the US response to the alleged chemical weapons attack on civilians by the regime in Syria. But in the tweets that followed, the President appeared to play down an imminent military response, noting that ‘’Never said when an attack on Syria would take place. Could be very soon or not soon at all!’’. US defence secretary Mattis said that there were non-military options available to the international community, while Russian leaders urged calm and reined in their own war rhetoric. That said the thread of a military response still remains a possibility. French President Emmanuel Macron said that there is proof that Assad’s regime again used chemical weapons and that allies are working to decide what response would be ‘’useful and efficient’’. Meanwhile, just to complicate matters a little bit more, Russia claims to have discovered chemical weapons stockpile in rebel territory.
The ease in geopolitical tensions helped sentiment, but President Trump also helped the cause following a meeting with lawmakers. On China the President said that the two countries ultimately may end up levying no new tariffs on each other. On NAFTA, he indicated that talks are progressing toward a successful renegotiation and on TPP, the President reportedly told lawmakers that he is considering re-joining the trade deal he pulled out shortly after taking office.
So with the world in a better place, US and EU equities have closed in positive territory and the VIX index has drifted below the 20 mark closing the day at 18.49. Worth noting too that there is a prospect for a re-focus back into to fundamentals as the earnings reporting season kicks-off in the US. Blackrock reported decent results yesterday and we have a few banks reporting their results today.
In Index terms, the USD has edged a little bit higher mainly driven by softness in European currencies and yen weakness. SEK is at the bottom of the G10 board, down almost 1% after underlying CPI inflation in Sweden came in below market expectations, with the ex-energy measure coming in 0.3% below the Riksbank’s forecast. The softer inflation number has essentially erased any prospect of an eminent a removal of easy policy by the Riksbank. ECB minutes (or accounts) from the 8 March policy meeting were also out and the overriding message is cautiousness. Policy makers noted concern over risks of a trade war with the US and its impact on confidence, while FX remained a source of uncertainty. The ECB repeated that the path on inflation was close to a sustained adjustment but not yet sufficient. Tighter financial conditions also got a mention, while the minutes said the removal of the easing bias should not be misunderstood. The ECB remains reactive rather than proactive. EUR ended the day 0.32% lower, the pair traded to an intra-day low of 1.2299 and now trades at 1.2327.
The improvement in risk sentiment has also helped the USD outperformance against JPY with USD/JPY now trading at107.33. Yesterday the pair traded to an intraday low of 106.70, but true to form, the decrease in safe haven demand has played into yen weakness in the past 24 hours.
Meanwhile the Kiwi and Sterling are the two pairs that managed to marginally outperform the USD..
As for US Treasury Yields, the 10y note is at 2.83% – the highest level in a week and the curve is a touch steeper. A quick look at commodities reveals a mixed picture. Copper is down almost 2%, gold is -1.3% and oil is essentially unchanged.
This morning on the Economic Front we have German CPI at 7.00 am and this is followed at 10.00 am by Euro-Zone Trade data. At 3.00 pm we have the US JOLTS data and the preliminary April University of Michigan consumer sentiment reading.
Meanwhile the Fed’s Rosengren and Bullard are on speaking duties and the US earnings reporting season starts in earnest with JP Morgan, Citi and Wells Fargo reporting.
June S&P 500
The S&P had a strong rally yesterday with the market falling just shy of my 2678 sell level with a 2674 high print before having a late fade into the close. I am still flat and today I will now raise my buy level to 2631/2642 with a 2626 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2595/2605 with a 2585 stop. My only interest in selling the S&P is on a further move higher to 2687/2700 with a 2710 stop.
My Euro plan worked well with the market trading lower to my initial 1.2310 buy level with a 1.2299 low print before rallying 40 points. As I wanted to bank some points for yesterday’s session I covered this position at my revised 1.2318 T/P level and I am now flat. The Euro has traded in a narrow 1.2212/1.2476 range over the past six weeks with very little movement intra-day. Yesterday I was surprised by the sell-off in the market and this was why I covered my long position. The Euro has strong support from 1.2220/1.2265 and today I will again look to buy the market on any dip to this area with a tight 1.2190 stop. I still do not want to be short the market at this time.
June Dollar Index
The Dollar tried to break support at 89.10 before rebounding into the close and I am still flat. Today I will raise my sell level slightly to 90.00/90.40 with a 90.70 stop.
The DAX continue to build gains above the key 12200 support level as thankfully we continue to have no sell levels in this market. I am still flat and today I will now raise my buy level to 12180/12250 with a 12120 stop. I still do not want to be short the market at this time.
The renewed strength in Sterling is hindering any real progress in the FTSE and I am still flat. Today I will raise my buy level to 7095/7135 with a 7060 stop. Meanwhile I will leave my sell level unchanged from 7250/7285 with the same 7315 stop.
Dow Rolling Contract
The Dow continues to build value above the key 24150 support level despite the late sell-off in the last 30 minutes of trading yesterday. The Dow needs to break and close over 24675 for a strong buy signal targeting 24975/25200, ahead of the next strong resistance level at 25750/25950. I am not sure if we can reach this high but the number of short positions in the market is a worry for the bears. Today I will now raise my buy level to 24100/24260 with a 23995 stop.
I am still flat the market which never came close to my buy level yesterday. The NASDDAQ has strong resistance at 6700 which was tested yesterday as a break and close over this level tonight is a buy signal for next week. Today I will raise my buy level to 6490/6550 with a 6445 tight stop.
No change as I am still a buyer on any dip lower to 158.25/158.60 with the same 157.95 stop.
Gold Rolling Contract
Gold had a weak session yesterday as the 1365/1375 area proved to be too hard for the market to break through. Easing of the political tensions did not help the Gold market which fell over 1.3% into the New York close and I am still flat. Today I will now lower my buy level to 1319/1326 with a 1311 stop.
Silver Rolling Contract
Silver just missed my 16.85 T/P level with a 16.81 high print before following the price of Gold lower. I am still long at 16.65 and will now add to this position on any further move lower to 16.35 with a higher 16.10 stop. I will now lower my T/P level to 16.80 and if my second level is filled before my 16.80 exit level I will then lower my T/P level to 16.70.