The top performer among major currencies has been the Canadian dollar where recent strong hints from Senior Deputy BoC Governor Carolyn Wilkins that the Bank of Canada is shifting to a ‘tightening bias’ given signs of an improving economy continues to resonate with markets. The Canadian dollar is up 0.50%, the Loonie also getting some boost during a session from oil prices that were bid higher, continuing the modicum of support seen through the European session yesterday. USD/CAD is trading at around 1.3220 in early trade this morning. That is nearly two big figures lower than last week. The C$ OIS market is now 32% priced for a hike at the upcoming 21 July meeting, with that expectation rising to well over 50% by the 25 October meeting and fully priced by the last meeting of the year on December 6.
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For anyone following my Platinum Service it made 12 points yesterday and is now ahead by 372 points for June, having made 1071 points 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 1750 points.
Meanwhile, a little money has drifted away from the US Dollar in the lead up to this evening’s FOMC announcement, though US Treasury Yields are little changed. The Bloomberg Dollar Index closed 0.20% lower, despite another strong NFIB Small Business Optimism Index for May. It also comes amid testimony to the Senate Intelligence Committee from US Attorney General Jeff Sessions, Sessions saying the notion he colluded with Russia a “detestable lie”, also saying he had some concerns over Comey.
On the economy front, the NFIB Optimism Index for May was at a still strong 104.5, exactly as expected and as it was last month. Small business activity and optimism looked to be lagging the US growth story but that has not been the case since last year’s US Presidential election. Before the election, the Index was 94.5 and jumped shortly thereafter. How much of this reflects the tenor of underlying US small business activity levels and how much hopes for Trump policy reflation remains unclear, though the latter is still evident.
NFIB President and Chief Executive Juanita Duggan thinks the Trump policy factor and hopes for high growth is still alive and well among NFIB members: “The remarkable surge in optimism that began last year right after the election shows no signs of slowing down. Small business owners are highly encouraged by the President’s regulatory reform agenda, and they remain optimistic there will be tax reform and health-care reform. This is a policy-driven phenomenon.”
I would also note that the survey is reporting stronger levels of compensation, up 2% points to 28, while “plans to increase compensation” was steady at 18, though that is up from last year’s (15) as actual compensation is. That won’t be lost on the Fed, suggesting that the mini slowdown in payroll average hourly earnings may yet be temporary.
Along with the CAD, Sterling has had a better 24 hours for once, up 0.40%. The UK CPI was up to 2.9% y/y from 2.7%, and this is remains a worry for the UK wage earner with nominal wages barely growing above 2%, an update out this morning in the monthly labour market report. The Conservatives are yet to come to a formal agreement with the DUP to form government.
The AUD has been steady to a fraction lower overnight though not breaking out of its recent range. It’s tested lower overnight toward 0.7525, having hit its high yesterday just above 0.7560 in the immediate aftermath of yesterday’s still upbeat NAB Business Survey for May. While oil had a better trading session it was mixed to lower among other key $A-related commodities. Iron ore took another hit yesterday, down $1.51/t, off 2.75% to $53.36, the lowest daily set in this down move. LME Copper was also down 0.95%, gold steady, ditto for met coal while the daily Newcastle steaming coal benchmark price is up 1.76% to $80.85.
This morning on the Economic Front we already had the release of German CPI which came in weak but as expected with a -0.2% print. At 9.30 am we have UK Employment Change and Average Earnings. This is followed at 10.00 am by Euro-Zone Industrial Production and Employment Change. Next at 1.30 pm we have US CPI and Retail Sales, followed by Business Inventories at 3.00 pm. Finally at 7.00 pm we have the FOMC Rate Decision and this is followed at 7.30 pm by the Fed Chair Janet Yellen press conference. US interest rate markets are fully priced for a hike (taking Fed funds up to 1.00-1.25%), but only half priced for one more by the end of this year just shy of the March Fed’s own median forecast of another by year end. But thereafter the Fed’s dot points and market pricing clearly diverge, the Fed’s median for the end of 2018 requiring three more to 2.00-2.25% against market pricing of just over 1.5%. Other watch points this evening will be statements on running down the Fed’s balance sheet and the extent of views on recent softer inflation and wages.
June S&P 500
This will be my last day for trading the June Contract as I will roll to the September Contract tomorrow as we have the Quarterly Expiration on Friday. As usual if any of my S&P calls get hit ahead of the FOMC, I will cut these positions which is my norm ahead of a major event. The Fed are again been very clever holding their latest FOMC Meeting in the week of a Quarterly Expiration as from past experience if the market sells off this evening, the market will not stay down for long as these Quarterly Expirations tend to end with a buying climax. Unfortunately the S&P only sold off to a 2431 low print shortly after the US markets opened yesterday thus missing my 2424 buy level before we rallied again to just shy of new all-time highs. Yet again we have seen the S&P rally into an FOMC announcement as the buy the dip mentality continues no matter what bearish news is out or the incredibly high PE ratios. This will only end when we see a major sell extreme that takes out some key levels on the downside. Today I will raise my buy level 2426/2432 with a 2421 stop. If my buy level gets triggered following the FOMC announcement I would subsequently expect the market to rally again ahead of Yellen’s press conference at 7.30 pm. These tend to be drab events but given the fact that she has not held a press conference for a few months we may see volatility pick up. The S&P has strong resistance from 2458/2468 and I will be a seller in this area with a 2475 stop. My sell area is wide given the expected volatility and I will try and build a position here by selling in small increments.
I am still flat the Euro as we await the FOMC this evening. I will now raise my sell level slightly to 1.1310/1.1350 with a 1.1380 stop, especially as I am already long the Dollar Index. Meanwhile I will leave my buy level unchanged at 1.1100/1.1140 with the same 1.1070 stop. Please see yesterday’s commentary re the extended EURO Daily Sentiment Index Readings which will only increase if the Euro trades higher following the FOMC Statement and Yellen press conference.
September Dollar Index
Just as I posted yesterday morning the Dollar was trading at my 96.70 buy level. I am still long as I emailed my Platinum Members yesterday, I will only add to this position on a further dip lower to 96.40. My stop will remain unchanged at 96.10 and I will now lower my T/P level to 96.85 on this position. With the DSI levels near single digits, it is only a matter of time before the Dollar rallies. However we may need to trade lower first before the market turns.
Despite the lack of volatility in the DAX, the market is still a buy on dips as we approach the 12879 all-time high made last month. I am still flat the DAX which just missed my 12690 buy level and today I will now raise my buy range slightly to 12680/12730 with a 12640 tight stop. Ahead of the FOMC I still do not want to be short the DAX at this time.
The FTSE traded lower to my 7490 buy level late in the day and as I wanted to bank some points for yesterday’s frustrating trading session I emailed my Platinum Members to cover this position at 7502 and I am now flat. The FTSE struggled yesterday on the back of the large rebound in Sterling. The next support level for the FTSE is at 7460 and today I will again look to buy the market on any dip lower to 7440/7470 with a 7410 stop. Just like the DAX above I do not want to be short the FTSE at this time despite its severely overbought condition.
Dow Rolling Contract
Incredibly despite the huge sell-off in the NASDAQ on Friday and Monday, the Dow closed at a new all-time high last night as the market held its March 1 previous all-time high at 12169 on Monday. This has been a slow crawl higher as the market approaches my 21400/24470 sell range. I will still look to go short here with a 12530 stop. Given how severely overbought the Dow is trading plus the fact that the market is very near my long term sell level I do not want to be long the Dow at this time.
I am still flat the BUND which despite 8 years into an alleged economic recovery only yields just over 20 basis points. With German Inflation again printing weak this morning it is another excuse to not sell the Bund. Today I will leave my sell level unchanged from 165.40/165.70 with a higher 166.05 stop. Given how overbought the Bund is trading I still do not want to be long the market at this time.
Gold Rolling Contract
Frustratingly Gold just missed my 1256 buy level with a 1258.70 low print before rallying strongly overnight. Ahead of the FOMC I am not going to chase this market higher and I will leave my buy range unchanged from 1250/1256 with the same 1243 stop. Yesterday Gold stopped at the 500 Day Moving Average which comes in at 1259.
Silver Rolling Contract
No change as I am still long Silver at an average rate of 17.06 with the same revised 17.10 T/P level. Meanwhile my stop will also remain unchanged at 16.60 and if I am stopped out of this trade I will be a more aggressive buyer on any further dip lower to 16.20/16.50 with a 15.90 stop