Macro Morning

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By Chris Becker

Stocks are finally feeling the heat of the tensions brewing across Asia, with US markets off 1% or more as risk scrambles for havens like Treasuries, Yen and gold. The USD lost ground and gave it back to commodities with oil and copper both rising. US Treasury yields are now on the cusp of getting below 2% again, as traders await the debt ceiling shenanigans amid all the other geo-political concerns and the ECB meeting later this week.

Recapping Asia yesterday the Shanghai Composite is putting in a scratch session to be at 3381 points, starting to stall here in its melt up to 3400 points. The daily chart continues to show a lot of congestion here at just below 3400 with daily ranges very tight, but momentum remains keen for another breakout here:

Japanese stocks were again hit as the Yen firmed once more against USD. The Nikkei fell 0.6% to close at 19385 points, still below the very firm resistance at the 20,000 point level. Futures are pointing to a big drawdown today as Yen firmed strongly overnight. This is going to keep drifting down to 19000 or so:

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The ASX200 tanked on the open, dropping more than half a percent but slowly recovered during the day to be only down 0.1% at the close at 5706 points. This keeps it back above the 200 day moving average once again, and interestingly Megabank and the Three Iron Ore Amigos were unscathed, pointing to broader losses. SPI futures are indicating a break here below 5700 points so we could be setting up finally for that big correction:

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On to Europe, where stocks were very cautious again flipping between gains and losses with the German DAX the only bourse to put in a positive close, up 0.2% but was hit in futures thereafter to remain just above support here at 12000 points. The DAX needs to rally soon and get back above that dominating downtrend line:

US stocks broke down as Treasuries too everyone’s attention away. The S&P500 fell nearly 0.8% with the four hourly chart showing the break of support and last weeks (in between the dotted lines) rally nearly cut in half:

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On to currencies where the Euro is again in wait and see mode as the ECB meeting looms. The union currency remained just above the 1.09 handle overnight as momentum on the four hourly chart suggests no upside breakout just yet. I’m watching the 1.1870 level for signs of a potential, but unlikely breakdown:

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The USDJPY is not stuck as it ducks down below ATR support and heads straight to but not through weekly support at the 108.50 level. This is bad for domestic Japanese stocks but not yet in danger territory – that’s below 108 proper:

The Aussie dollar is also strong against USD with The City interpreting the RBA meeting as yield positive, bidding the Pacific Peso up to and almost through the 80 handle oevernight. A very positive move, this sets up for another crack higher to 82 cents:

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Oil prices came back strongly overnight with the WTI contract back above the $478USD per barrel level. With the high moving average band breached and the daily uptrend respected, the next move is the former high just below $50:

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And finally to gold, which is pushing aside too far too fast concerns by breaking above the $1340USD per ounce level overnight. I’m still expecting a retracement on profit taking back down to $1300 or so but the 2016 high at $1375 is still the upside target in the medium term:

Glossary of Acronyms and Technical Analysis Terms:

ATR: Average True Range – measures the degree of price volatility averaged over a time period

ATR Support/Resistance: a ratcheting mechanism that follows price below/above a trend, that if breached shows above average volatility

CCI: Commodity Channel Index: a momentum reading that calculates current price away from the statistical mean or “typical” price to indicate overbought (far above the mean) or oversold (far below the mean)

Low/High Moving Average: rolling mean of prices in this case, the low and high for the day/hour which creates a band around the actual price movement

FOMC: Federal Open Market Committee, monthly meeting of Federal Reserve regarding monetary policy (setting interest rates)

BOJ/Abenomics: Bank of Japan, economic policy/direction enacted by PM Shinzo Abe

DOE: US Department of Energy 

Uncle Point: or stop loss point, a level at which you’ve clearly been wrong on your position, so cry uncle and get out!

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