Macro Morning

By Chris Becker

Caution reigned on risk markets overnight with the ECB meeting taking a dovish turn while currencies were largely unchanged alongside the other barometer, US Treasury yields although the 10 year remains under the previous “magical” 3% level. Commodity prices fell slightly, with the Aussie dollar also slipping alongside Kiwi.

Recapping Asia’s session yesterday where the Shanghai Composite is playing catchup after a couple of uneventful session, closing 1.2% higher to 2634 points, finally back above the previous support level at 2600 points. The daily chart is still moving sideways however with price gravitating around the orange support line just above 2600 points with no signs of a breakout yet:

Japanese stocks put in a solid day as well with the Nikkei 225 up nearly 1% to 21816 points but still looking quite sheepish on the daily chart so I wouldn’t call this a bottom yet. The positively correlated USDJPY pair continued its uptrend overnight however so that should provide a nice tailwind to finish the week, where I’m looking for a substantial close above the high moving average before calling this anything but a short term short covering rally:

The ASX200 was the poorest performer, up only 0.14% and still out of whack with other risk assets to be at 5661 points, still above terminal support and attempting to build on its own nascent recovery. SPI futures are mixed so we’re unlikely to see a test of the 5700 point level today:

European stocks were relatively positive from the start but caution reigned as the raft of central bank meetings got underway with most markets putting in very minor gains. The German DAX actually finished a few points lower to 10924 points, still not above previous terminal support at 11000 but not looking any worse for wear. Still early days for signs off a recovery until it can breach 11000 (solid black line):

A similar situation with US stocks as caution kept any brave buyers away, with the S&P500 closing a point lower after being more than 0.5% higher  in the middle of the session. The four hourly chart is still showing an inability to crack the nearly week long downtrend, and to get above critical ATR resistance near the psychologically important 2700 point level:

On to currencies, where the usual volatility around the ECB meeting saw Euro move around a little bit before stabilising at the mid 1.13’s again. The inability to make a new intra-week session high suggest the current move is a swing play only:

The USDJPY pair however continued its own recovery, making a new session high and almost reaching last week’s high at the 113.80 level. This is where everyone is looking as momentum starts to wane, resistance could be too much here:

The Aussie dollar was very slowly melting higher in a series of tight sessions, but a failed breakout saw it retreat back to the midpoint of the moving average band. I’m still watching for a breakdown here, which could set up a multi week downtrend, but expect the unexpected on the upside:

Oil prices got a small break overnight, with the WTI contract finally making a new daily high, closing just below the $53USD per barrel level.  Price had been reverting back to the previous terminal lows, so this session is much more promising, so keep an eye out for the $55 level next:

Gold however had another pause after getting ahead of itself previously, with a pullback to finish at the $1240USD per ounce level. With price well above the previous highs, this is looking good going into next weeks FOMC meeting, but there could be some profit taking before then:

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)

NFP: non-farm payrolls, or US unemployment, the most important event on the economic calendar

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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