Macro Morning: S&Power

By Chris Becker

As Asia wakes up Monday morning, the mood is more cautious than ebullient, notwithstanding some solid gains on the US markets on Friday night – up around 0.7% or so across the board. Q4 earnings and a subsiding Ebola panic has sent the S&P500 almost back to its former trend line on the daily charts:

Chart SP500, D1, 2014.10.26 22:00 UTC, VantageFX Pty Ltd., MetaTrader 4, Real

That’s a mighty rebound and shows how a simple oversold indicator can provide you with opportunity to get back in – see the extreme reading of CCI in the lower chart. Risk is not out of the woods yet of course, with this week spelling the end of QE3 and uncertainty on the other side.

In European cash markets, the FTSE 100 fell nearly 0.5%, the DAX even further at 0.6% but the futures caught up after the close and slowly trailed the US market upswing to finish flat for the session.

The FTSE daily chart shows its rebound has not sparked as high as the US and while it has recently broken its downtrend line, it has all the hallmarks of a dead cat bounce, unable to breach a daily high trend or gain positive momentum:

Chart FTSE100, D1, 2014.10.26 22:03 UTC, VantageFX Pty Ltd., MetaTrader 4, Real

I’m looking at a possible re-entry of a short position, a possible catalyst for volatility the monthly EZ CPI releases later this week. The local market is dancing exactly next to the US bourses and is looking firm on the dailies, but is slightly over-boughton the shorter time frames, so I expect potential pullbacks in the week ahead.

Chart SPI200, D1, 2014.10.26 22:06 UTC, VantageFX Pty Ltd., MetaTrader 4, Real

This should give some good re-entry points for longs on any dips.

Onto commodities and then I’ll finish up with an outlook on currencies and starting with WTI crude there is a potential bottom still to be found here:

Chart CL-OIL, D1, 2014.10.26 21:56 UTC, VantageFX Pty Ltd., MetaTrader 4, Real

But the range between 8350 and 8000 is being sold on every rally post the NY open and while momentum is diverging it is not yet positive. I’m looking for a breakout either side of that range with a fall below $80USD per barrel signalling more than just a technical correction. There’s nothing to be said about copper, which is still stagnant at just over $3 a pound other than keep an eye out for breakouts.

In gold a follow through smackdown didn’t occur on Friday night, nonetheless there is considerable pressure at the $1234USD per ounce level. I’m watching the 3-day low at $1226 as tentative support and if that breaks, like other “undollar” markets out there, it looks like this was just a feint in the long downtrend with $1200 the next downleg target:

Chart XAUUSD, D1, 2014.10.26 22:13 UTC, VantageFX Pty Ltd., MetaTrader 4, Real

Starting with Euro there was a push on Friday to send it up through the 1.27 handle but unsuccessfully. However, it still has solid support at 1.26 but the weekly trend has been flat as a base is formed following the huge devaluation this year from nearly 1.40 against the USD. Its hard to get a read short-term, but there will definitely be some movement during the CPI/UE releases this week.

Cable is exhibiting the same dynamics as Euro but short term at least has more potential for upside followthrough with a nice upswing on the four hourlies evident:

Chart GBPUSD, H4, 2014.10.26 22:17 UTC, VantageFX Pty Ltd., MetaTrader 4, Real

The daily trend is still down after the rebound post-Scottish referendum and I’ll be watching the 1.60 handle very closely this week for any sign of US strength post-QE3 termination.

With the Aussie, the picture on the daily chart is a symmetrical wedge as the coil tightens between support and resistance:

Chart AUDUSD, D1, 2014.10.26 22:20 UTC, VantageFX Pty Ltd., MetaTrader 4, Real

This will resolve in either a capitulation below 87 cents or a new upswing up to 89 or even further. The problem with these patterns is one of reliability, and with the symmetrical nature its usually a 50/50 proposition. However, the former downtrend in AUD plus the macro settings continues to put more weight on the downside.

I still remain structurally short on AUD (against almost everything) and nothing has changed that outlook, technical or otherwise.

There are some very important data releases this week which is the CPI/unemployment cycle for most of the major economies. Durable goods and consumer confidence prints coincide with the end of QE3 on Tuesday night which are sure to add to volatility followed by the FOMC meeting and European unemployment on Thursday. Nothing locally today and indeed this week is light for Australian prints (still no monthly CPI of course).

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