For any trader who was an Australian Dollar bear, Friday was about as depressing a day as it has been all year, AUD/USD coming within a pip of its 2016 high of 0.7835 and closing at its highest level since May 21st 2015. A lot of analysts are now going to have to re-evaluate where they stand with the Australian Dollar for the rest of this year as any economist still forecasting a move below 0.70 – it looks a long way down from here. Downside surprises on US headline and core CPI (the fourth in succession) Retail Sales and Consumer Sentiment, made it a miserable day for the US dollar. Combined with the VIX falling further below 10 and retesting the 9.36 year-to-date low, this tells you just about everything you need to know about the AUD’s 0.7832 NY closing level.
To mark my 1375th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 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 firstname.lastname@example.org for details.
For anyone following my Platinum Service it made 23 points on Friday and is now ahead by 579 points for July, having made 1023 points in June, 1071 in May, 1376 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
Core CPI printed 0.1% against 0.2% expected to hold at 1.7% year-on-year; Retail Sales fell 0.1% against +0.2% expected with core measures also weak, while the University of Michigan’s preliminary July Consumer Sentiment Index dropped by 2 points against an expected unchanged reading. Is post-election Trump-related optimism finally wearing thin? The only saving grace was Industrial Production that printed a little stronger than expected thanks to an ongoing revival in mining investment (i.e., further lifts to shale oil production). The Baker Hughes weekly rig count on Friday showed another 2 US rigs coming on line, to a total of 765.
In stocks, JP Morgan, Citi Group and Wells Fargo all reported better than expected earnings but their stocks all finished lower – seemingly on the interest rate message from the US data (the ‘higher yields means stronger earnings’ narrative suffering a setback). The S&P nevertheless finished 0.47% higher at 2,459.27 to be 1.4% on the week. The VIX lost another 0.39 to 9.51, 1.68 points lower on the week (the 9 June low was 9.36, so closing in on that).
In FX, across-the board USD weakness saw the DXY -0.6% to 95.153 and to its lowest level since mid-September 2016 and the BBDXY -0.68%. AUD posted the strongest gains in G10, +1.31% to 0.7832.
In Interest Rates the erstwhile global sovereign yield back-up suffered a further small set back Friday thanks to the US data calendar. 10s were -1.2bps to 2.333% (and so reversing most of the immediate post CPI/Retail Sales drop, to be -5.3bps w/w).
Meanwhile in commodities, dollar weakness continues to provide across-the-board support, with oil adding another 50 cents (WTI to $46.54 and up $2.31 on the week. Gold added $17.8 to $1,227.5 and is $10.20 higher on the week. Iron ore lost 20 cents Friday but is $2.94 up on the week to $65.74.
This week I will be looking to developments in Washington as a major market swing factor, specifically the progress of otherwise of the Senate version of a Health Care Reform bill. Abandonment of the bill – if more than two Republicans commit to vote against – would deepened the sense Trump’s whole policy agenda is dead in the water; progress could help remove some of the current Trump discount factor weakening the US dollar.
This morning on the Economic Front we have no data of note from either the UK or the Euro-Zone, while the only data of note from the US is Empire Manufacturing at 1.30 pm. Of course the highlight this week is the ECB Meeting on Thursday, where according to a Reuters poll published Friday, the economics profession looks quite evenly split on whether the current QE-easing bias will be dropped (i.e. the expressed willingness to extend size and/or duration of the current €60bn per month bond buying). If it is dropped this could well be the cue for a fresh bout of Euro buying. We also have the BoJ on Thursday, but they won’t be changing their message – in fact a downgrade to their inflation forecast is the risk.
September S&P 500
Friday was another trading session of near misses with the S&P just missing my 2439 buy level before accelerating to a 2461 high print. After the S&P hit my initial 2458 sell level I emailed my Platinum Members to exit this position at 2457 as I did not want to be short the market over the weekend, especially with the S&P finally joining the Dow by closing at new all-time highs. However after a 50 Handle rally since the Wednesday’s low print the S&P is severely overbought and trading at the top of its Daily Bollinger Band and Williams Index. On top of this the S&P has very strong resistance from 2463/2471 and today I will be a seller in this area with a wider 2477 stop. Given the expected volatility surrounding these new highs I will now trade in smaller size to see if this resistance level can hold. At the same time I have to respect Friday’s positive price action and I will now raise my buy level to 2439/2445 with a 2434 stop.
As I was already long the US Dollar Index I emailed my Platinum Members to raise my sell level in the Euro to 1.1495/1.1535 with a 1.1570 stop. Given how overbought the Euro is trading I will leave my sell range unchanged especially with the DSI reading again above 90% bulls. Despite the persistent rally in the Euro which has now risen over 10% since its early January low I do not want to be long the market at this time.
September Dollar Index
Following the release of the weaker US CPI and Retail Sales data the Dollar traded the whole of my buy range which now has me still long at my 95.15 average buy level. As mentioned in my Economic Commentary above the Dollar closed at its weakest level since mid-September 2016. The market is severely oversold as shown by the DSI reading of just 8% bulls. My stop will remain unchanged at 94.65 while I will now lower my T/P level on this position to 95.30. If I manage to T/P at 95.30 I will again look to buy the Dollar on any subsequent dip lower to 94.75/95.05 with a 94.45 stop.
Given the continued strength in the Euro I am surprised how strong the DAX is trading. Friday was extremely frustrating as the DAX just missed my 12550 buy level by just 15 points before rallying 100 points and I am still flat. I am reluctant to chase this market much higher from here and today I will only raise my buy range slightly to 12500/12560 with a 12460 tight stop. Despite my concerns for this market I do not want to be short the DAX at this time.
Very late on Friday the FTSE traded lower to my 7305 buy level before rallying into the New York trading session. As I wanted to be flat over the weekend I covered this position for a small gain at 7318. The FTSE is really struggling in comparison to the other main Indices on the renewed strength in Sterling with EUR/GBP now trading 200 points lower in the last two trading sessions. This is a big move. Today my only interest in buying the FTSE is on a dip lower to 7260/7290 with a 7230 stop.
Dow Rolling Contract
The Dow also missed my buy level before surging to another record close. However just like the S&P above, the Dow is also trading outside the top of its Daily Bollinger Band and is severely overbought. It does not mean that the market cannot get more overbought but thankfully over the last month we have stayed away from selling the Dow. This going to change from today especially with the VIX closing near all-time lows. Remember we still have seven Hindenburg Omen’s on the clock and at some stage this is going to matter. For these reasons I will now look to sell the Dow on any further rally to 21710/21780 with a 21830 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller on any further rally to 21850/21920 with a wider 21980 stop.
No change as I am still a buyer of the Bund on any dip lower to 160.50/160.85 with a 160.20 stop.
Gold Rolling Contract
Despite the positive price action in Gold on Friday I still do not trust this market. For this reason I will only raise my buy level slightly to 1206/1213 with a 1199 stop.
Silver Rolling Contract
Frustratingly Silver missed my 15.55 buy level by 5 cents before rallying strongly and I am still flat. Today I will now raise my buy level to 15.50/15.85 with a 15.15 stop which is just below the 15.17 low print made last week.