Macro Morning

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By Chris Becker

Rolling rolling rolling – keep those record highs rolling! But only just as US stocks eked out a nominal new high with the USD strengthened and Treasuries pulling back, as the risk rally looks like running out of steam a little too quickly. In the commodity space, oil jumped on higher US domestic gasoline demand while copper was beaten down on the LME, taking gold with it. Should be a queasy day here in Asia with all eyes on the Aussie jobs report and the Chinese trifecta of internal breadth releases (FAI, retail sales and industrial production)

Recapping Asia yesterday the Shanghai Composite lifted only slightly, up 0.1% to 3384 points as it tries again to melt up through resistance at 3400 points. The daily chart continues to show a lot of congestion here at just below that level, so if broken the upside move should be quick, but I’m getting cautious here for a possible pullback:

Japanese stocks had another solid day as the positive correlation with the USDJPY continued. The Nikkei lifted 0.4% to finish at 19865 points, still poised to break above 20,000 points anytime soon. Futures are pointing to another leg up here as Yen weakened further overnight, so 20,000 here we come?

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The ASX200 could not make good on its great start to the week by dropping a few points to finish at 5744 but still remaining above the 200 day moving average. While it surged higher at the open, a late selloff in mining stocks and some of the peripheral banks saw a scratch session, although CBA is doing well here to recover. SPI futures are suggesting a slight pullback here, which makes sense given the daily chart has all the hallmarks of hesitation to the upside, unable to make new highs:

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On to Europe, where again the FTSE lagged following the previous sessions lacklustre response and the rise in the Pound on a much higher than expected inflation print. The rest of the continent lifted with the German DAX up around 0.2% to continue above previous rolling ATR resistance. The weaker Euro is helping here so this little bounce should continue:

US stock markets all made new highs, but only just as these should be considered scratch sessions. The S&P500 rose less than 2 points to make it just under 2500 in what looks like a broader move, but if it wasn’t for BTFD, this would be a market to be more cautious in:

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On to currencies where the resurgent USD theme is starting to broaden outside of Yen. Pound Sterling came back after its recent inflationary blip but it was all about the Euro last night as it broke through ATR support at the 1.19 handle to settle at last week’s low. This big move has the potential to break to the two week low at the 1.18 proper:

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Yen continued to weaken overnight, with a big surge through to the 110.65 level before moderating late in the session, which should give another tailwind to domestic Japanese stocks in Asia today. I still contend this is too much too fast and I expect a retracement back to the high moving average soon as this is a natural resistance level on the longer term charts:

The Aussie dollar also took a hit on the USD reversal, getting knocked down below ATR support at the 80 handle, almost taking it to last week’s lows. This has taken the wind out of the bulls sails with the next downside target the intersection of the weekly uptrend line (in black) at the 79.20 zone. Watch out today for the jobs report!

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Oil prices finally broke free on a very solid DOE report overnight with the WTI contract bursting up to be back above the $48USD per barrel level overnight. The daily chart showed a tightening band of resistance and support that could presage a further breakout above trailing resistance at the $50 level so watch that level tonight:

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And finally to gold which is just holding on to support, making a new daily low however that could be setting up for a broader price correction down to the $1300USD per ounce mark. Price in the short term needs to respect the low daily moving average line above $1320 at least. The target remains the 2016 high at $1375 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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