Price action over the past 24 hours has been all about the jump (+3%) in oil prices following yesterday the decision by President Trump to pull the US out of the Iran nuclear deal. 10y UST yields have climbed above 3% and US equities have rallied with gains led by energy and financial shares. Both the Dow and S&P 500 have closed over their respective 50 Day Moving Averages. After edging higher after I posted yesterday morning, USD Indices are unchanged with Nordic and commodity link currencies the outperformers.

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Oil prices have climbed over 3% in the past 24hrs with both Brent (@$77.32) and WTI (@$71.62) now trading at levels not seen since late November 2014. After Tuesday’s decision by President Trump to pull out of the Iranian nuclear deal and reinstate sanctions on Iran, oil prices embarked on a steady rise aided as well by  news of an unexpected drop in US stockpiles, reinforcing the notion that the oil market is tightening and hence vulnerable to a reduction of Iran crude supply.

For now the focus appears to be on the potential reduction in oil supplies assuming Iran is unable to sell its oil to the market. However, sanctions are only coming into effect in 180 days, Europe, India and China have been the major buyers of Iranian oil and it is unclear if they will stop buying. On the subject, US Treasury Secretary Mnuchin said that ‘’we have had various conversations with various parties about different parties that would be willing to increase oil supply to offset this, my expectation is not that oil prices go higher.’’ Shortly after Trump’s decision Saudi Arabia released a statement saying that it would work to ‘’mitigate the effects of any supply shortages’’, raising the prospect that it could raise its own supply.

So despite the uncertainty, the market has run with the view that Iranian sanctions are yet another source contributing to the ongoing tightening in the oil market. Meanwhile the geopolitical implication have also seemingly taken a back seat, if sanctions are imposed does that mean Iran restarts its nuclear programme? If so, what do Israel and Saudi Arabia do about it? Talks over the next 179 days are going to be critical in this regard.

So the move higher in the oil prices has contributed to the rise in 10y UST yields back above 3%. That said the move higher has not just been led by breakevens, the real rate has also edged higher. The US PPI released yesterday came a little bit below expectations (ex-food and energy Apr 2.3%yoy vs. 2.4% exp.), but given its low correlation with CPI (out this afternoon, see more below) the impact on markets was rather muted. The 10y US Treasury auction saw decent demand, mainly supported by dealers while indirect bidders (proxy for offshore CB demand) interest was below average.

Higher oil prices also played into the US equity performance with the energy sector (+2.03%) leading the gains in the S&P500 (0.97%). The move higher in UST yields has contributed to the gains in financials (1.50%) while news that North Korea had released 3 captive US citizens played into the feel good/risk on environment, dragging the VIX Index sub 14.

Yesterday, just as I posted the USD was in the ascendency with USD/JPY leading the way and flirting with a break above 110. The AUD was also under pressure trading down to a low of 0.7413, but the improvement in risk sentiment and move higher in oil prices has helped the AUD pair back all of yesterday’s losses with the pair now trading at 0.7466. The AUD continues to probe new lows for the year, but my fair value model is telling us that the decline in the currency is starting to look stretched, so for now I would remain weary of chasing the AUD lower from here.Meanwhile the Daily Sentiment Index for the Australian Dollar has fallen to just 10% bulls.

This morning the RBNZ left its cash rate unchanged as expected, but it appears slightly dovish at first glance.

Lastly SEK has been the outperformer with a gain of 1.31%, seemingly still benefitting from the less dovish tone from the Central Bank’s minutes of its April meeting released on Tuesday.

Looking at other news, former Italian Premier Silvio Berlusconi said he is open to the formation of a government by the anti-establishment Five Star Movement and the Euroskeptic League. This may put Italian bonds and the Euro under [pressure today as Berlusconi’s support opens the prospect for an anti- Europe and populist administration in Italy.

This morning on the Economic Front we have UK Manufacturing, Construction and Industrial Output along with the Trade Balance which will all be released at 9.30 am. This is followed at 12.00 pm by the UK Rate Announcement. The Bank is expected to stand pat and although the consensus view is for the BoE to lower its growth and inflation forecasts these expectations are largely reflected in the Gilts market and the Pound. A full rate hike has now been pushed out to February 2019, thus  the risk is that the BoE turns out less dovish than current pricing suggests. At 1.30 pm we have US CPI. The headline is expected to print at 0.3%mom (0.0% prev,) taking the yoy reading to 2.5%, up one tenth relative to March. Core CPI is seen unchanged at 0.2% with the yoy reading edging up to 2.2% from 2.1%. Given the recent Fed emphasis on its symmetric inflation tolerance and current pricing for just over two more Fed hikes in 2018, unless we get a big upward CPI surprise, my suspicion is that today’s inflation data is unlikely to elicit a big market reaction. The Weekly Jobless Claims will also be released at 1.30 pm. Finally at 7.00 pm we have the US Federal Budget.

June S&P 500

Unfortunately the S&P fell just shy of my 2663 buy level before finally braking above the key 2675 resistance level where we had the 50 Day Moving Average and rally nearly 25 Handles into the close. Incredibly the S&P has now rallied almost 110 Handles off last Thursday’s 2591 low print. While we have been largely buyers on dips for the past two months thankfully we have not been caught short for this huge run higher. I still think that this is a major Bear Market rally especially with geopolitical tensions mounting plus of course the higher Interest Rates especially if the 10 Year Treasuries can have a sustained break above 3%. However short-term the 50 Day Moving Average should act as strong support to any initial sell-off. For this reason I will now raise my buy level to 2676/2686 with a 2679 stop. The S&P should soon break the initial key 2700 resistance level and challenge the 2718 high from early April. Today I will now raise my sell level to 2722/2734 with a 2741 stop.

EUR/USD

Unfortunately the Euro just missed my 1.1815 buy level with a 1.1822 low print before rallying 70 points and I am still flat. The morning the Euro is trading at 1.1875 as the market tries to correct its severely oversold condition. The Daily Sentiment Index for the Euro closed at 7% Euro bulls, which is the lowest level of trader optimism since December 2016, shortly before the 1.0341 low on January 3, 2017. As a result I will now raise my buy level to 1.1810/1.1850 with a 1.1770 stop.

June Dollar Index

Shortly after I posted the Dollar traded lower to my revised 93.00 T/P level on my 93.05 short position from Tuesday and I am now flat. Today I will again look to sell the Dollar on any rally higher to 93.10/93.50 with a 93.85 stop. Given how overbought the Dollar is trading I do not want to be long the market at this time.

June DAX

The DAX broke 13000 yesterday and again this morning with the market now trading over 1000 points higher in a few weeks. Thankfully we were never short during this aggressive move higher. The DAX topped last June at 12948 and if the market does decide to sell-off from here then we could well have a negative Head & Shoulders pattern and this is definitely worth keeping an eye on. The DAX is severely overbought and due a correction. The next resistance level is at 13125 and today I will be a small seller from 13100/13170 with a 13210 tight stop. Meanwhile I will raise my buy level slightly to 12780/12850 with a 12730 stop.

June FTSE

My FTSE plan did not work well as after I went short at 7600 I was quickly stopped out of this position at my 7655 stop level and I am now flat. The next target level for the FTSE is the 7740 all-time high set earlier this year. The FTSE has now rallied 14% off its lows of two months ago and is severely overbought but as of yet we do not have a sell signal. Today I will now look to buy the market on any dip lower to 7570/7610 with a 7530 stop. I do not want to be short the market at this time.

Dow Rolling Contract

The Dow rallied to my initial 24570 sell level with a 24590 initial high before having a quick 80 point sell-off. I did not sell the market myself especially after breaking the 50 Day Moving Average. Hopefully if any member did sell the Dow that they were able to make a nice gain before the Dow rallied again overnight. Today the 50 Day Moving Average comes in at 24425 and this area should now act good support on ant test lower. Today I will now raise my buy level to 24260/24400 with a 24195 tight stop. The Dow has strong resistance from 24800/24950 and today I will be a seller in this area with a 25040 stop.

June NASDAQ

Unfortunately the NASDAQ just missed my 6790 buy level with a 6808 low print before rallying strongly into the close and I am still flat. Today I will now raise my buy level to 6800/6840 with a 6760 tight stop.

June BUND

I am still flat the Bund which is again looking to challenge the key 159.00 pivot point. I do not have an edge for a market that has mainly traded sideways in a 150 point range over the past two months. The Bund has strong resistance at the March/April highs of 159.60 and my only interest in selling the market is on a further rally higher to 159.50/159.90 with a 160.30 stop.

Gold Rolling Contract

No change as I am still a buyer on any dip lower to 1288/1296 with a 1281 stop.

Silver Rolling Contract

Silver rallied to my 16.50 T/P level on my latest long 16.35 position and I am now flat. Today I will again look to buy the market on any dip lower to 16.00/16.40 with a 15.75 stop.