Macro Morning

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morning121111

by Chris Becker

Monday nights with no real data releases are always fun on macro markets – not. But at least last night we saw the broad return of volatility, with a relatively big slide in the S&P500 down 17 points to below 2000 at 1993.

This “slump” (I love how the negativity on reporting on stocks goes to the moon in a bull market – it was only a minor pullback) was on the back of a few things, namely poor existing US home sales, some comments by Mario Draghi on the “sluggish” Eurozone recovery (ha!) and some broader risk aversion throughout the FX and commodity complex mainly because China reiterated that it won’t be rushed or cajoled into stimulating as it sensibly restructures its economy.

Pity about those economies tied to the waist, but you took your chances didn’t you?

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The real slump in iron ore is sending waves through markets tied to the China restructuring meme, with Brazil taking a hit amongst others, but moreover its the algo trade in commodity risk assets like Aussie dollar (which I’ll talk about in further depth in a separate post).

Here’s a closer technical look starting with Cable (GBP/USD) which after a small rally in the Asian session yesterday morning couldnt get past its pre-Scottish referendum high amid lower volatility readings (check out ATR in lower pane) although it rallied on general USD weakness later in the session. I expect the London open level at 1.6349 to be tested in Asia trade with a range established:

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Gold (USD) had a bit of a small rally on some Fed comments, but then the selling re-continued. Here’s the hourly chart showing the blip, the daily downtrend remains firmly in place with support around $1213 level the one to watch:

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There was a small fall in the German DAX, but it was the UK FTSE that took a real hit, on the back of retail giant Tesco’s poor profit release. Looks like the FTSE has broken its short term support and is heading down:

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The Euro took a small hit after the European session opened on Mario Draghis comments, approaching the 1.28 handle but rallied some soon after. The major downtrend remains in place:

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All eyes were on the Aussie (AUDUSD) which fell straight through the 89 handle – more on this in a separate post! This is my preferred 30 minute chart – although it went oversold coming into the US session, I think further falls are on the cards as we open this morning.

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And to the S&P500 – the daily chart below of the mini future whilst giving off a bearish daily candle, has not broached support (the green horizontal line below). A break down, confirmed by a four hourly (or overnight) close below 1980 points would signal a small correction ahead:

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The agenda today in Asia will center around the HSBC PMI release for China just before midday, as Asian traders will absorb the falls in stocks overnight and react to the continuing fallout in the iron ore price.

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