The Rooster Call: US Warns China of Yuan Drop

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

Good morning, traders! Do you remember those James Bond movies where some guy sits in a chair stroking a cat says something like, “it seems the calculus has changed Mr. Bond.” This phrase comes to mind when I read the US is warning China of the continued drop in the Yuan. In other words, the market now has a new uncertainty to deal with. What exactly will the US government do to the second largest economy in the world and major holder of US bonds? Will this spark renewed interest in gold?

My first morning read of course is chart action…the real newspaper for traders. We have the ES at the level discussed in your video last night and if you did not listen to the discussion on ES day trading for today, please take a moment now for the important message.

Our bench-mark for risk aversion/risk acceptance is lower and ES has followed. ES down and Euro up. The usual confluence is broken and at some point should resolve. Both instruments are likely to provide excellent day trading. Euro this morning seems unstoppable.

Yen has surged on news the Bank of Japan made no policy changes. Furthermore the BOJ said they were unlikely to add fiscal stimulus in the short-term. This means those short Yen are watching closely wondering if they need to cover short positions or risk the trade to 98.55 area. Closing above this level is a game-changer.

The overnight name of the game in Forex trading was trash the US dollar. All currencies higher against the US dollar. This is initial knee-jerk response to the Bank of Japan statement (3rd largest world economy) and perhaps the idea the US Treasury might intervene against the Yuan by selling dollars in order to drive the US currency lower. Conjecture, but possible. Just be aware of the trading landscape.

The financial press continues to harp on the employment report missing 8000 new jobs from consensus. This adds greater emotional component to reading the FED Minutes on Wednesday. Traders are laying the ground work for a knee jerk reaction. Today we have three FED presidents speaking…the mission…portray independent thinking but stick to the same song sheet not upsetting the equity and bond markets.

Today’s Reports and FED Activity

10:00AM ET – JOLTS Report on Job Openings – Yellen reads it.
13:30PM ET – FED Kocherlakota Speaks
14:45PM ET – FED Plosser Speaks
16:00PM ET – FED Evans Speaks

Overnight/Pre-Market

  • US Dollar down typically is bullish for equities and commodities.
  • Bonds incrementally lower.
  • ES flat after touching 1833.25. Your video detailed what we are looking for and the repercussions for other markets. Is it possible markets will trade quietly in front of the Beige book? Of course. I simply want you prepared and watching.
  • DAX, STOXX 50, and FTSE 100 lower.
  • Gold moving overnight in response to US dollar falling touching a bench mark we monitor.
  • Crude higher on lower US dollar…incrementally with Brent.
  • Grains are very quiet. The trade is assimilating the March 31 USDA report. I will review this separately with you.
  • Cotton incrementally higher, yet could not hold overnight high. The likely reason cotton moved was lower US dollar. Price resting on a bench mark.

Day Trader Bench Marks

Intraday ES Floor Pivots – Using 24 hour electronic market hours 1800-1715 ET.

R3: 1883.25
R2: 1872.50
R1: 1856

Main floor pivot: 1845.25

S1: 1828.75
S2: 1818
S3: 1801.50

Intraday Euro Floor Pivot – Using 24 hour electronic market hours 1800-1700 ET.

R3: 1.3813
R2: 1.3780
R1: 1.3760

Main floor pivot: 1.3727

S1: 1.3707
S2: 1.3674
S3: 1.3654

Think About This!

Crash option trade in QID shows a profit of $225.50. We paid $125.00 for this. Crash trade in TZA shows $46.50. We paid $59.00 for this. We used the extra hedge to off-set option trades which were initiated last week on technical analysis signals. The hedge is wonderful. The recent market action has cause us to make adjustments we normally do not worry about. For example, an IBB trade went against us by $200 per position. We bought the short call back and let the long put run completely erasing the earlier loss. Option trades are discussed in the Options Letter.

Have a great trading day!

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