A mixed US labour report and a softish ISM Non-Manufacturing print had minimal impact on the US Dollar and US Treasury yields while global equities have continued on their merry way higher amid a supportive global economic backdrop. Strong Canadian Jobs were the big data surprise on Friday propelling the Lonnie to the top of the G10 leader board (+0.60%) and the Euro is essentially unchanged after commodities had a mixed end to the week. The December US Non-Farm Payrolls number came in at 148k vs 190k exp., but after the solid ADP report on Thursday (250k) many were looking for a print above the 200k mark. Average hourly earnings printed in line with expectations at 0.3%mom taking the year on year number to 2.5% (November was revised lower to 2.4% from 2.5%) and the Unemployment rate held steady at 4.1%, a 17 year low.
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For anyone following my Platinum Service it lost 110 points on Friday and is now down 35 points for the month of January, having made 946 points in December, 823 points in November and 657 points in October. 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 knee jerk reaction to the US labour data triggered a dip in the US Dollar and US Treasury yields, but the move proved short lived. The story remains relatively unchanged, the US labour market remains solid and the monthly rise in average hourly earnings points to a steady rise in wage growth which should keep the Fed on track for 3 rate hikes this year.
So in the end the USD closed Friday little changed in index terms. Against G10 currencies, the CAD jumped 0.60% after a very solid labour market report which revealed 78k jobs were created in December vs 2k expected by the market. Canada’s Unemployment Rate dipped 2 tenth to 5.7%, a new 41 year low and the CAD briefly touched 1.2375, a three and a half month low. CAD opens the week at 1.2413.
The Australian Dollar traded in a 0.7835 -0.7875 range on Friday and currently trades at 0.7860, its eight consecutive day with a 78 handle. Mixed commodities performance on Friday were a factor hindering the AUD with oil prices retracing some of the previous day’s gains (WTI -.0.9%, Brent -0.7%). Copper (-0.9%) and Aluminium (-2.1%) also had a day to forget, but Iron ore gained 1% and climbed above the $75 mark for the first time since February 2017 (TIO Futures). So for now the AUD remains unable to break above the 0.7880/90 resistance level (October highs), Australia’s Retail data on Thursday could be the local trigger and offshore data releases on Friday are the ones to watch (see more below).
The Euro has also been unable to break above its key resistance level of 1.2090 and after briefly rising on the Non-Farm payrolls US Dollar dip, the pair closed the day down 0.32% and currently trades at 1.2027. USD/JPY managed to close above the 113 mark, but continues to lag the move in equities and UST yields.
10Y UST yields closed the week at 2.47% after briefly trading down to 2.43% intraday. Meanwhile the 2y rate held steady at 1.96% with the UST curve little changed in the end. 10y Bunds were also unchanged at 0.439% and 10y Gilts climbed 1bps to 1.244%
In other news, the December ISM Non-Manufacturing printed below expectations and 1.5points lower than the previous month ( 55.9 vs 57.6 exp.). The decline in the headline number was driven by significant declines in business activity and new orders growth.
China’’s foreign-exchange reserves printed another increase, marking the 11th consecutive monthly gain. Reserves increased $20.7 bn to $3.14tr in December, just above the $3.13trn expected. Tighter capital controls and a steady economy have certainly helped in this regard.
The Fed’s Williams (voter) said on Saturday that 3 hikes in 2018 make sense. Noting that ‘’We are in a pretty good situation: the economy is doing great, everyone expects us to raise rates gradually’’. And then adding that ‘’I am not worried about inflation suddenly taking off’’.
Finally, President Trump said on Sunday that he would “absolutely” be willing to talk on the phone to North Korean leader Kim Jong-un, and hopes a positive development results from talks between North and South Korea.
This morning on the Economic Front we have German Factory Orders at 7.00 am and this is followed by UK Halifax House Prices at 9.30 am. At 10.00 am we have Euro-Zone Consumer Confidence, Business Confidence and Retail Sales. Finally we have US Consumer Credit at 8.00 pm.
March S&P 500
Before the release of the US Payrolls I was stopped out of my short 2719 S&P position at 2729. Subsequently after we got the NFP data the S&P traded higher to my 2734 sell level before selling off to my revised 2728 T/P level as emailed to my Platinum Members and I am now flat. This rally is now getting silly and in the melt-up phase with the Daily Sentiment Index reading at a three year high with a 93% print. The next resistance level for the S&P is at 2750 ahead of the Third Standard Deviation at 2792. However trying to short this market is extremely difficult as we have seen over the past few trading sessions while at the same time the price action has to be respected. The S&P has strong support at 2720 and today I will now move my buy level higher to 2717/2724 with a 2711 stop. I will also be a small seller on any rally higher to 2760/2768 with a 2774 stop.
Unfortunately the Euro just missed my initial 1.2020 buy level before rallying thirty points and I am still flat. The Euro subsequently sold off into the New York close and I again emailed my Platinum Members to reduce any buy level to 1.1945/1.1980 with a 1.1915 stop. If I am taken long I will have a T/P level at 1.2010. My only interest in selling the Euro is still on a rally higher to 1.2120/1.2160 with a 1.2205 stop.
March Dollar Index
My long 91.60 Dollar position worked well with this market trading higher to my 91.80 T/P level ahead of the NFP data and I am still flat. Today I will again look to buy the Dollar on any dip lower to 91.10/91.55 with a 90.75 stop.
The DAX which was on the brink of a major breakdown last Tuesday has had a dramatic 600 point turnaround of its 12733 low print which unfortunately just missed my 12730 buy level last week on a strong volume as the market broke and closed over the 13200/13300 resistance level. The 13180/13240 area should now act as strong support on any test of this area and today I will be a buyer here with a 13130 stop. Thankfully we had no sell levels last week and even though the DAX is overbought I still do not want to be short the market at this time.
The FTSE continues to lag the European and US Markets despite closing at new all-time highs and I am still flat. Today I will now raise my buy level to 7590/7630 with a 7550 stop. I know my buy level is below the market but I do not trust this market especially with Sterling rallying, yet I still do not want to be short the market either.
Dow Rolling Contract
This incredible rally in the Dow continues with no pause as one stop after another gets taken out with the market now trading well outside the top of its Daily Bollinger Band following a near 700 point rally so far this year. This rally has left 4 ‘’Open Gap’s and if we stay where we are at 25365 as I post this commentary it will be 5 ‘’open Gap’s so far this year. Unfortunately after my second sell level at 25150 was filled on Friday for an average short position of 25115 I emailed my Platinum Members to exit any short position at my revised 25100 T/P level and twice the market just missed my exit level by a few points before stopping me out of this trade at 25205 and I am now flat. Thankfully given the extent of the rally in the last hour of trading and so far this morning on the re-open of the markets that we had a tight stop as yet again all short position have got slammed. As I mentioned in my S&P commentary above this move higher is getting silly and the higher this market goes without a correction the odds increase of a serious crash. However until we get a sell-extreme that lasts for more than a few days it is so difficult to be short. Today I will move my buy level to 24990/25100 with a 24940 stop. The Dow’s next resistance level is from 25450/25520 and today I will be a small seller in this area with a 25580 stop.
As my initial 6660 sell level was being tested on Friday I emailed my Platinum Members to cancel any sell order and stay flat over the weekend. I am still flat as the market although making new highs is struggling to rally which is no surprise given how overbought we are trading. Today I will again look to sell the NASDAQ on any move higher to 6705/6745 with a 6780 wider stop.
No change as I am still a seller on any rally higher to 162.35/162.75 with the same 163.05 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1294/1302 with a 1286 stop. Given the extent of the rally over the past few weeks I am reluctant to chase the Gold market higher.
Silver Rolling Contract
Unfortunately Silver just missed my 17.05 buy level with a 17.09 low print before rallying into the New York close and I am still flat. Today I will now move my buy level higher to 16.85/17.10 with a higher 16.55 stop.