We had a fairly subdued end to what has been a pretty eventful week characterised by additional oil market (and broader commodity price) strength linked to Donald Trump’s decision to pull out of the Iran nuclear deal, a failure of US CPI inflation to accelerate, an abrupt mid-week reversal of earlier US Dollar strength and which meant AUD pulled back up comfortably above 0.75, and a positive week for risk sentiment – Trump’s Iran decision notwithstanding – that saw the VIX closing below 13 for the first time since 26th January. For the Australian Dollar, Friday’s close around 0.7540 put it a pip or two above the previous Friday’s close. Few would have bet on it ending the week in the black after making a low of 0.7412 at mid-week.
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For anyone following my Platinum Service it finished flat on Friday and is still ahead by 553 points for May, having made 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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The USD pulled up from its lows on Friday after a slightly better than expected University of Michigan Consumer Sentiment reading (unchanged at 98.8 against an expected fall to 98.3) but still ended Friday lower, while CAD suffered on a 1.1k fall in Employment against an expected rise of 20k. For equities, after two good ‘’up’’ days for US stocks, US indices meandered rather aimlessly to all finish little changed (S&P+0.1%). Health care was the best performing sector, on a view that President Trump’s plans to lower drugs prices would be a year or more in the regulatory making and will not impact pharma profits for a long while yet. On the week, all the main global Indices are up, with the US leading the way with gains of between 2.3% and 2.7%, their best weekly showing since March and best closes since mid-March. The VIX ended Friday at 12.65.
US Treasuries also had a relatively quiet session Friday with 10s trading with a 2.95-2.98% range and finishing 2bp up on Thursday’s close at 2.97%. On the week yields are slightly higher bar the ultra-long end which benefited from Thursday’s stellar 30-year auction. In the US money market, we continue to see compression in the spread between Libor and OIS (from around 60bps at its widest in early April to 47bps at 3 months). The Libor slippage does somewhat reduce the attraction of long-US Dollar ‘’carry’’ trades, but whether this is a factor beyond the fall-back in the USD from the middle of last week is debatable.
In FX, most currencies were slightly higher against the Dollar, SEK in particular which continues to recover from its April/early May pasting. The exception was the CAD which suffered on the weaker than expected employment reading; the bigger influence this week will be the progress or otherwise on NAFTA negotiations ahead of what US House speaker Paul Ryan said late last week is an end-of-week deadline for a deal if Congress is going to legislate something before the November mid-term elections.
The DXY USD index was down 0.1% on Friday and unchanged on the week. Friday’s latest CFTC/IMM data on Futures positioning showed that net speculative short positions in the USD against other currencies are now barely a third of what they were at their recent peak, suggesting that the USD no longer has the tailwind from position unwinding that was almost certainly a factor behind recent strengthening (and related AUD weakness). CFTC AUD positioning data shows speculative net short positioning up to 17k contracts out from 6k the week before.
In commodities, it was a very mixed performance Friday, with iron ore (+1.5%) the standout winner while oil gave back a little of its mid-week gains linked to Trump’s decision to pull out of the Iran deal. Most other commodities were also slightly lower. On the week, oil and all hard commodities are all up with Brent oil the standout, save for metallurgical coal, off 1%:
In other economic news China’s April lending and money supply data published on Friday evening was a bit stronger than expected on the lending numbers (New Yuan Loans 1180.0bn and Aggregate Social Financing 1,560bn, both up on March) but M2 money supply growth only lifted to 8.3% from 8.2% against 8.5% expected. We will get April’s activity data tomorrow.
This morning on the Economic Front we have no data of note due from either the UK, the Euro-Zone or the US which must be the first time that this has ever happened. However we do have a lot of Central Bank speakers today which hopefully will add to the volatility. At 8.45 am the Fed’s Mester is speaking at a conference in France and this is followed by ECB Members Mersch and Praet at 11.00 am and 12.45 pm respectively. Next it is the turn of Fed Member Bullard who is speaking at 2.40 pm. Finally we have the ECB’s Coeure at 6.45 pm.
June S&P 500
Unfortunately the S&P did not trade as low as my 2708 buy level before rallying strongly into the close as yet again anyone trying to short the US Stock market has got slammed. Overnight the S&P is higher again trading at 2738. There is no doubt that this move higher is overdone especially when we see the VIX close below 13 which is a level in the past from which we have seen the stock market move lower. The S&P is now severely overbought after its 145 Handle rally in just six trading sessions. The S&P has strong resistance from 2749/2759 and today I will be a seller in this area with a 2765 tight stop. Despite the S&P being overbought I will now raise my buy level in the market to 2714/2722 with a 2708 stop.
As I mentioned on Friday, the Daily Sentiment Index Readings is one of the best technical indicators for determining market direction especially when we get extreme levels such as the reading of 7 for the Euro last Wednesday night. Unfortunately we have not been able to get a long position on board with the Euro just missing my 1.1875 buy level on Friday with a 1.1892 low print and I am still flat. Today I will be more aggressive with my buy level and I will now raise it to 1.1885/1.1935 with a wider 1.1845 stop. This is a good risk/reward trade against the key 1.1850/1.1890 support area.
June Dollar Index
I am still flat the Dollar and today I will now lower my sell level again to 92.65/93.05 with a 93.35 stop. I still do not want to be long the Dollar at this time.
The DAX has struggled to move higher over the past two trading sessions as we have traded sideways since I posted on Friday with the strength of the Euro an obstacle for higher prices which is not surprising given how severely overbought the market is trading. Today I will now lower my sell level slightly to 13080/13150 with a 13205 stop. Meanwhile I will leave my buy level unchanged from 12800/12880 with the same 12735 stop.
I am still flat the FTSE which came close to my sell range on Friday before having a small sell-off. Today I will raise my sell level slightly to 7745/7785 with a 7815 stop. I will also raise my buy level to 7605/7645 with a 7570 stop.
Dow Rolling Contract
The Dow gapped higher on the re-open last night to trade in my sell range to a high so far at 24977. It is difficult for me to know if you did short the market given it was so late on a Sunday night. With the McClellan Oscillator falling slightly to close at +120 on Friday from Thursday’s +127 close I sold the Dow in small size at 24950 which is over 1400 points higher than the low recorded last Thursday week. This is some move and the market is now severely overbought and due at least a small correction. I will have a T/P level on this position at 24880 and I will only add to this position on any further move higher to 25050 with a tight 25110 stop. If any of the scenarios happen I will be back with a new update for my Platinum Members.
No change as I am still a seller on nay rally higher to 7035/7075 with the same 7110 tight stop. Given how overbought the NASDAQ is trading I do not wish to move my buy level higher and I will leave it below the market at 6840/6880 with the same 6795 stop.
Is the Bund ever going to move again? I have never seen a Bund market with so little volatility as we have witnessed over the past two months. Today I will now lower my sell level slightly to 159.30/159.70 with a 160.05 stop. My only interest in buying the Bund is on a dip lower to 157.70/158.15 with a 157.35 stop.
Gold Rolling Contract
Gold continues to hold above its 200 Day Moving Average at 1303. I still do not trust this market as everyone I know is long Gold. I am still flat and today I will leave my buy level unchanged from 1299/1306 with the same 1292 stop.
Silver Rolling Contract
I am still flat and today I will also leave my buy level unchanged from 16.25/16.55 with the same 15.85 stop.