Just when it looked safe to be thinking about the Aussie dollar pushing up though some pretty significant resistance levels and potentially advancing back up into the 0.78s, along come the latest Emerging Market ructions to push it firmly back down in the range. Indeed, AUD is far and away the weakest G10 currency in the last 24 hours (down to 0.7625) a day after having made a new six week high just above 0.7675 in the wake of Wednesday’s Australian GDP report. The Japanese Yen and Swiss Franc are the strongest.
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For anyone following my Platinum Service it lost 41 points yesterday and is now down by the same amount for June, having made 1927 points in May, 1657 points in April, 1760 points in March, 2256 points in February, 879 points in January and 946 points in December. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Brazil is the proximate cause for most of yesterday’s moves not just in currencies but also in global stocks and equities, where the S&P has closed (slightly) in negative territory, the VIX has added back almost a point from Wednesday and US Treasuries at 10 years come into the New York close about 5bps lower. The South African Rand, Mexican Peso and Russian Rouble have also been under the pump, ZAR down 2.5% and MXN and RUB both down by just over one percent, versus the 1.6% loss for the BRL.
The latter move brings its loss since the end of April to some 13%. There is nothing specifically new about the (ongoing) political and economic travails in Brazil; rather it seems to be more about the momentum established since USD/BRL broke up above its post mid-2016 range highs near 3.50, which led markets to start entertaining the thought of a return to the prior highs above 4.00. The seeming ineffectiveness of initial efforts by BCB, the central bank, to defend the Real, looks to have added to negative sentiment and related capital outflows.
The irony here is that the Institute of International Finance’s latest EM flows tracker published last night showed the daily inflows to EM equity and bonds market since May 31st recording their sharpest upturn since early 2016 (of some $6.1bn). However, over half of that is into China, followed by Korea and Taiwan. Brazil and South Africa have both experienced sizeable outflows (Mexico is not included in this data set). Positive flows into EM Asia show up in a firmer ADXY (the Asia EM currency index) this month, to which the AUD is correlated.
While there are no obvious catalysts for an apparent broadening of Emerging Market (albeit ex Asia) pressures in recent days, it is valid to speculate that the ECB’s mid-week signalling that the conditions for ending its QE bond buying programme look to have fallen into place, is relevant. We are not yet talking ‘’QT’’ as is the case in the US, but another nail in the coffin at least of liquidity expansions from major central banks. Watch this space.
As well as the Mexican Peso, the Canadian Dollar has also performed poorly, albeit not as badly as the AUD. Relations between US Presidents Trump and Canadian Prime Minster Justin Trudeau look to be going from bad to worse in respect of barbs being traded on trade matters, in front to the G7 meeting slated to start in Quebec today and run through Saturday.
In other Trump-related news, the President offered Chinese company ZTE Corp a lifeline, allowing it to continue in business after paying a $1.4b fine and requiring US enforcement officers inside the Chinese company to monitor its actions. At the margin, this eases US-China trade tensions, with no doubt expectations of China offering a quid pro quo in return. This though has further inflamed members of Trump’s own party. Marco Rubio, the Republican senator leading criticism of Mr Trump’s shift on ZTE, immediately lashed out at the agreement, calling it a ‘’very bad deal’’ and vowing to continue his push for congressional action to block it. Rubio tweeted that ‘’I assure you with 100% confidence that ZTE is a much greater national security threat than steel from Argentina or Europe’’.
Economic news for yesterday has been scant. Very weak German Factory Good Orders data is not seen changing the course of ECB monetary policy, where speculation continues to reign of another tweak next week to the Bank’s official policy stance, setting the scene for an end to the Quantitative Easing programme. EUR weakness post the data was fleeting and the common currency reached an intra-day high of 1.1840, continuing to show signs of recovery from the 1.1510 nadir at the height of angst around Italy recently. US Weekly Jobless Claims remain near record lows, and come after the JOLTS report earlier this week shows there are no more job vacancies in the United States than there are unemployment people to fill them. Who needs immigration?
Sterling trading has been whippy, trading in a 100pip range, as rumours swirled of the potential resignation of UK Brexit secretary Davis. He seriously objected to PM May’s plan to tie the UK into EU customs rules for an open-ended period of time after the country leaves the bloc next March. A political crisis was averted with fudge on the Irish border issue. PM May has amended the back-stop plan in the case of no agreement being reached for a ‘’temporary customs arrangement’’ until a longer term trade deal is in place. This saga has a long way to run yet, with EU officials still said to be dismissive of the UK plan. The debate in the House of Commons schedule for Tuesday and Wednesday next week on the amendments to the original Brexit Bill demanded by the House of Lords is the next potential flashpoint.
This morning on the Economic Front we have German Industrial Production, Trade Balance and Labour Costs at 7.00 am. This is followed by the Bank of England’s Inflation Target for the next twelve months at 9.30 am. Next we have Canadian Unemployment at 1.30 pm. Finally we have US Wholesale Inventories at 3.00 pm.
Finally, note that on Sunday Switzerland holds its referendum on ‘’Vollegelt’’, a proposal that would in effect strip the Swiss Banking system of its ability to create credit beyond that supplied by the Swiss National Bank. Polls strongly suggest it won’t get up and the SNB is adamantly opposed, but were it to succeed it would cause ructions not just in Swiss market put potentially globally.
June S&P 500
On what turned out to be a volatile trading session in which the VIX closed 1 point higher none of my parameters for the S&P were filled. Today I will raise my buy level to 2752/2760 with a 2745 stop. Meanwhile I will leave my sell level unchanged from 2795/2805 with the same 2812 stop. Again if I am taken short and subsequently stopped out of this position I will be a more aggressive seller on any further rally to 2825/2845 with a 2853 stop.
The Euro missed my 1.1870 sell level with a 1.1840 high print before selling off small into the New York close and I am still flat. Today I will lower my sell level slightly to 1.1855/1.1895 with a 1.1930 stop. Remember a break and close over 1.1880 this evening is a buy signal for next week. Meanwhile I will leave my buy level unchanged from 1.1655/1.1695 with the same 1.1625 stop.
June Dollar Index
No change as my only interest in selling this market is still on a rally higher to 94.10/94.50 with a 94.85 stop.
My DAX plan worked well with the market trading lower to my 12790 buy level before rallying to my 12825 T/P level and I am no flat. The DAX which at one point was trading comfortably above the 12900 area had a bad close followed by a late sell-off. The DAX has strong support from 12540/12610 and today I will be a buyer on any dip to this area with a 12480 stop. Despite the negative price action I still do not want to be short the market ahead of next week’s key ECB Meeting.
My FTSE plan also worked with the market trading lower to my 7670 buy level before the market rallied to my revised 7690 T/P level just before the New York close and I am still flat. The renewed weakness in Sterling should stop the FTSE from falling too much and today I will again look to buy the market on any dip lower to 7600/7640 with a 7565 stop.
Dow Rolling Contract
As I have mentioned countless times that trading can be a game of small margins and this certainly was the case for me and the Dow yesterday. After the Dow traded higher to my second sell level at 25250 for an average short position at 25180 the market briefly fell before spiking to a high of 25322 which stopped me out of my short position at 25320. Subsequently the Dow fell 160 points to a low at 25160 before rallying into the New York close and I am now flat. A frustrating trading session to add to a frustrating week. Today I will move my buy level higher to 24920/25080 with a 24840 stop. The Dow has resistance at yesterday’s high and above here at 25500. Today my only interest in selling the market is on a further move higher to 25380/25520 with a 25590 stop.
In contrast to a higher Dow yesterday the NASDAQ fell 100 points with the market trading lower to my average buy level at 7143. A late rally saw me cover this position at my revised 7162 T/P level as outlined to my Platinum Members and I am now flat. Today I will again look to buy the NASDAQ on any dip lower to 7030/7085 with a 6980 stop. As it is a Friday I do not want to be potentially short the market over the weekend.
I am still flat the Bund which traded to a low of 159.39 before rallying strongly into the close. Today I will be a buyer on any dip lower to 159.10/159.50 with a 158.70 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1282/1289 with the same 1275 stop.
Silver Rolling Contract
My latest long Silver position worked well with the market trading higher to my revised 16.90 T/P level. Subsequently I emailed my Platinum Members to re-buy the market again at 16.75 which was later filled. I am still long and I will leave my T/P level unchanged at 17.05 with a higher 16.30 stop.