With the US Equity and Bond Markets closed for the funeral of George H.W.Bush markets have traded in a narrow range following the aggressive sell-off in equity markets on Tuesday. The Bank of Canada issued a dovish statement following its ‘’no change’’ rates decision, arguing that sharply lower oil prices of late – and for Canadian Crude note much more so that global benchmarks – will have both some negative impact on activity as well as allowing for a longer period of non-inflationary growth. The BoC Statement saw the implied probability of the next rate rise occurring after the January meeting fall from about 65% to less than 25%. March is though still priced at more than 50% with the BoC reiterating that rates still need to rise to closer to neutral (from 1.75% now). The Canadian Dollar immediately rose by about 0.9% with USD/CAD hitting its highest level since June 2017 at 1.3400. The move imparted some collateral damage on the AUD, AUD/USD pulled down from 0.7300 to 0.7260 (0.7267 now), while the EUR/USD closed unchanged at 1.1340
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For anyone following my Platinum Service it was flat yesterday and is still ahead by 220 points for December, having made 1541 points in November, 2094 points in October, 1279 points in September, 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March and 2256 points in February. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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AUD/USD earlier fell from around 0.7350 to sub-0.73 on the weaker than expected 0.3% GDP print, and which left annual growth as of Q3 at 2.8% after negative revisions, well below the RBA’s forecast of 3.5% growth this year and next, restated in Tuesday’s post meeting statement. Following the latest releases of growth, labour market and prices data, NAB is reassessing its view on monetary policy. While growth has turned out broadly as expected over 2018, inflation has been weaker and the RBA appears more patient. An updated set of growth and rates forecasts will be published next week.
Elsewhere the Japanese yen is a little weaker, aided by a better risk tone after yesterday’s comments from China describing the Trump-Xi meeting as ‘’very successful’’, affirming a commitment to push forward trade negotiations over the next 90 days and, related to this, reports that the wheels were already in motion for China to restart imports of Soybeans and LNG. Partly because of this, European stocks fared much less badly than Wall Street did on Tuesday (and where most of the falls occurred after the European close). S&P 500 futures (the ‘’e-mini’’) are up around 0.6%. Cash stocks and bonds were of course both closed for the state funeral of George H W Bush.
The British pound (+0.2%) is a firmer despite a much weaker than expected services PMI report of 50.4 down from 52.2 and 52.5 expected and which contained some pretty dire warnings about how services might fare in coming months. Helping Sterling was Tuesday night UK parliamentary approval of a bill that would give it the say in ‘’what happens next’’ if the Brexit Withdrawal Bill is defeated next week (as seems likely). This is seen to reduce the risk of no deal/hard Brexit ‘’crash out’’ come next March.
GBP gains have held up EUR/USD but it is the Canadian Dollar’s 9.1% weight in the DXY Dollar Index that means the latter is slightly up on the day (+0.05% at 97.1).
No trading is US bonds yesterday. The key feature of European bond trading was a further fall in Italian yields, 10yr BTPs off another 9.5bps (Spread to German Bunds now in to 278bps). Italy’s PM Giuseppe Conte is due to meet with the EU’s Jean-Claude Juncker today with new budget proposals.
Focus has been on oil, where the preliminary meetings ahead of the formal OPEC discussions today indicate agreement to some sort of production cuts with as yet no agreement on how much (1.1mn is one figure being bandied about). US President Trump has though again been out railing against any output cuts from OPEC+. Crude prices are currently lower on the day, by around 0.5%. It was a fairly mixed performance elsewhere with precious metals mostly lower, non-ferrous base metals mixed, iron ore futures about 1% up and both coals slightly lower.
This morning on the Economic Front we have German Factory Orders. Next we have the US ADP Employment Change at 1.15 pm and this is followed at 1.30 pm by the Trade Balance, Weekly Jobless Claims Unit Labour Costs and Non-Farm Productivity. At 2.45 pm we have the Markit PMI and Services. Finally at 3.00 pm we have ISM Non-Manufacturing and Factory Orders.
December S&P 500
There is no doubt that Tuesday’s aggressive 90 Handle sell-off has done a lot of technical damage to the S&P. However unless we break the now key 2585/2615 major support area then I will continue to be a buyer on dips. Although both the Dow and NASDAQ have hit my long-term targets so far the S&P has not and that what’s makes this key support area so crucial. Short-term if the S&P can build value below 2720 then we should see a test of my support area over the coming days. On the other hand if the S&P can break and close back above 2720/2740 then there is every chance that we can break higher into the high 2800”s. On the re-open of the Futures Market on the CME Exchange the S&P got hit hard driving the price to a low so far of 2649. The CME issued a statement saying that they intervened to prevent further falls by have 10 second pauses between executed orders. There is certainly no hiding place in this market and is the main reason why I stayed flat yesterday. Today I will be a buyer on any further dip lower to 2635/2650 with a 2625 stop. If the S&P does sell-off to my 2585/2615 support area I will be an aggressive buyer in this range with a 2570 wider stop. I will also be a small seller on any rally higher to 2738/2748 with a 2756 stop.
Yesterday the Euro just missed my 1.1300 buy level with a 1.1310 low print and I am still flat. Today I will leave my buy range unchanged at 1.1260/1.1300 with the same 1.1225 stop.
December Dollar Index
No Change as I am still a seller on any rally higher to 97.40/97.75 with a 98.05 stop. Given how overbought the Dollar is trading I do not want to be short the market at this time.
Even though the DAX traded well yesterday I am not going to chase this market higher. While the DAX trades 24 hours on the spreadbetting firms the official market which I trade is closed and will re-open at 7.00 am. I am still flat the market and today I will now lower my buy level to 10890/10960 with a 10810 stop.
With the worsening political situation ongoing in the UK, The FTSE again was heavy. The official FTSE market does not re-open until 1.30 am and it obvious at this stage that the market will open below yesterday’s buy level and stop. I am still flat and given how oversold the FTSE is trading I am reluctant to chase this market lower. As I have buy levels in my other Indices I am going to stay flat the FTSE and see how the market trades today. If I see a decent risk/reward trade later I will email my Platinum Members.
Dow Rolling Contract
Following the 800 point sell-off in the Dow on Tuesday which was the fourth largest points loss in history it will be interesting to see what follow-through we have today when the Cash Dow opens this afternoon. The 25300/25500 area is key for the Dow as the longer we stay below this price range it opens up the possibility of a strong move lower. Therefore the Dow must quickly regain this key resistance area or else it will be further evidence that the nine year bull market is in serious trouble. Just like the S&P above when the Dow Futures Market opened the Dow traded to a low so far of 24550 before rallying 300 points from this low as I go to press. The Dow has support from 24400/24600 and today I will be a buyer on any dip to this area with a 24285 stop. I do not want to be short the Dow at this time. It is hard to believe that the Dow was trading at a price of 26070 shortly after the European Markets opened last Monday morning.
The 300 point fall in the NASDAQ on Tuesday took out some key support levels with ease. I am still flat and today I will be a seller on any rally higher to 6870/6940 with a wider 7005 stop. I still do not want to be long the NASDAQ at this time.
The Bund traded in a narrow range yesterday which is no surprise with the US Treasury Markets closed. Today I will now lower my sell level slightly to 163.50/163.90 with a 164.20 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1214/1223 with a 1207 stop.
Silver Rolling Contract
Yesterday Silver traded lower to my 14.45 buy level. I am still long and I will now lower my T/P level on this position to 14.60. I will also raise my stop on this trade to 13.95. If any of the above levels are hit I will be back with a new update for my Platinum Members.