The Rooster Call: Dollar Strengthens on Possibility of Interest Rate Hike

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

Good Morning Traders!
Yesterday, Atlanta FED President Lockhart said he was supportive of raising interest rates in September. This was all the US dollar needed to hear forging higher as Euro fell by default.

Markets moved lower after Lockhart’s comments, negating the “turn around Tuesday” expectation. But that’s yesterday’s news!

This morning we have a strong rally taking shape and new services claim the move is traders going long in front of the private ADP employment report.  Really?  Most likely, this action is simply large hands pushing the market higher and as the market rises, traders and the trading programs take note of price levels launching orders continuing momentum. Algorithmic trading makes the process automatic and lower volume markets allow price to slice through resistance like a knife through hot butter.

ES is acting like a runaway freight train moving higher in dramatic action from near yesterday’s lows to yesterday’s highs, where price now struggles for further gains. (Report in at 8:15AM ET…5 minutes as I write).

This ES action is the kind of movement and follow-through we expect during the day rather than pre-market.   Yesterday’s major equity index futures move occurred during the lunch hour, then resumed chop on ES.

We have no expectations of continued upward ES price action during the USA trading session. Be careful.

Yesterday’s sell-off in AAPL shows no firm is immune to sudden evisceration of price and market standing. The large drop yesterday in AAPL and other steep sell-offs in stocks not meeting Wall Street expectations, yet still running great businesses, are typical nervous market energy in a lingering market plateau where traders eat their own.  The action is more of a hallmark of a market top (beyond the triple top in ES futures on daily chart).

And yet, we will not call a market top until the side-way channel is violated.  The powers of Wall Street are keeping the dream alive as long as possible until seasonal influence for higher risk-on action occurs in the Fall. The ES trading is in a wide band.

Understand the reason the market has continued support is due to a lack of alternatives for massive amounts of money…trillions of dollars.  For this reason, bonds should continue seeing support regardless of an incremental (and the FED stresses incremental) rate increase. So after an initial pull-back from a FED increase in rates, bonds will likely resume their rise.

The IMF came out with a report saying the Chinese currency is not ready for designation as a world “reserve” currency. A lot has to do with the debt load. Reports show private debt is 160% of Chinese GDP. The Chinese central bank is printing money like there is no tomorrow matching other major central banks.

Overnight News

As US dollar climbs, Euro falls, and DAX gains, which is the overnight market leader more often than not passing the baton to the ES during USA trading hours. 

Eurozone consumers held back on retail sales in a report showing retail sales dropped 0.6% from May to June. Annual retail increase is 1.2% for 2015.  (Recall the Japanese consumers also practicing frugality with USA consumers).

Eurozone PMI Services index shows the top three Eurozone economies with lower readings from prior month, yet still above 50 (marks expansion).

  • Germany – Drops to 53.7 from 53.8 reading.
  • France – Drops to three month lowat 52.
  • Italy – Drops to 52 from 53.4 reading.

Spain surprised with a reading of 59.7 over expectations of 55.5.
Economic Events
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
8:30 International Trade
8:30 Gallup U.S. Job Creation Index
8:30 Treasury Refunding Quarterly Announcement
9:45 PMI Services Index
10:00 ISM Non-Manufacturing Index
10:30 EIA Petroleum Inventories

 Markets

  • DAX leads the charger higher. All equity index futures we follow are higher in strong price action.
  • VIX futures lower.
  • Brent and USA crude incrementally higher. Crude report today.
  • Natural gas higher…three daysnow.
  • Gold and Silver asleep. Their time is Friday with the USA Employment Situation report.
  • Copper tight consolidation.
  • Grains quiet. The Corn crop is passed weather damage potential, but Soybeans vulnerable.
  • Cocoa incrementally higher.
  • Cotton dangerous.
  • Coffee flat.
  • Sugar consolidates.
  • We don’t follow OJ, but somebody certainly likes it judging from price action.
  • Bonds lower thanks to FED President comments.
  • Euro lower hitting our area we discussed over the weekend in the Trader Weekly Review.
  • Pound consolidates.
  • Yen consolidates.
  • Canadian dollar remains in trouble.
  • Aussie incrementally red to flat.

Think About This!

NQ and YM better trading instruments yesterday.

THIS JUST IN – ADP Employment Report shows 185,000 new jobs created versus consensus of 210,000. This report puts downward bias on Friday’s government report. The ES trades higher telling you traders love the idea of fewer jobs created as a road block to the FED raising interest rates.

Question: Was the ADP report leaked earlier this morning causing the parabolic market rise?  Well, anytime big money is involved, you have to ask yourself that question. Nothing we can do about it of course, but it makes more sense than what the financial news services dish out to the masses.

Have a great trading day! 
Martin

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.