Macro Morning

By Chris Becker 

Risk markets are still floating along on a positive sentiment vibe while the USD reversed course overnight, surging against the majors and knocking gold back to its lowest level in two weeks. Treasury yields continue to climb, now above 2.71% as the latest CPI print came in a little hotter than expected.

Looking at the action on the Asian session yesterday, the  Hong Kong Hang Seng Index closed 1% higher to remain well above 28000 points, finally able to make a significant new daily high as it cleared the previous highs. This rally is steadily building above the previous false break high at 27300 with momentum still in a slightly overbought zone for it to continue:

Japanese stock markets continued their own surge, with the Nikkei 225 closing more than 1% higher to 21134 points. This clears substantial resistance at the 21000 point level as a classic breakout opportunity builds here on the daily charts, dependent on a weaker Yen of course, so I’m watching for a subsequent close higher to confirm:

The ASX200 was  the weakest across the region, pulling back from its previous gains to be down 0.3% but still well above the 6000 point barrier at 6063 points. The overbought nature of the market is suggesting a mild rollover back to 6000 with SPI futures indicating a 10 or more point drop on the open today, despite a much lower Aussie dollar overnight:

European stocks started off well enough and finished with some solid finishes, absorbing the UK and US CPI prints as both Euro and Pound Sterling reversed course against USD. The German DAX closed 0.4% higher to 11167 points, building on the previous bounce but not yet clearing the previous daily highs from late January. Momentum is still positive on the daily chart so this has the potential to at least match the previous high near 11350 or so:

Wall Street had a modest start before selling off into the close to finish with some minor gains as the stronger USD weighed. The S&P500 finishing 0.3% higher to 2753 points. The four hourly chart shows a pause here at the 2750 level so I’m watching the low moving average to see if it can punch through the recent session highs at 2760 points:

On to currencies, where the moves in CPI prints dominated the undollars as the Euro flopped over and down through the 1.13 handle, taking out all the gains so far this week. As I said yesterday, the shorter timeframes indicated it was almost out of puff, so now I’m watching for new session lows below this level as I still contend the longer term move is 1.12 or even 1.10 level:

The USDJPY surged on the CPI print, taking out the 111 handle in a fairly swift move that is likely to revert to mean in Asian trading today. The symmetrical triangle pattern combined with the smooth momentum launched this higher, ticking all the boxes:

The Aussie dollar did not get any relief on the USD reversal, heading back below the 71 handle and almost into negative momentum territory. This mean reversion back below the high moving average on the four hourly chart reinforces the downward trend for the Pacific Peso:

Oil prices are stabilising following last week’s stumble with the WTI contract lifting overnight to close just above the $54USD per barrel level. This now negates the bearish rising wedge pattern which hadn’t come to fruition on the daily chart showing obvious support at the $51.70-$52 building:

Finally to gold, which had been sliding slightly sideways in a welcome mean reversion and pullback but the much stronger USD has pushed it very close to its long held trendline, finishing just above the $1305USD per ounce level. This move needs to be filled and defended here, or it could swiftly correct down to ATR trailing support at the $1280 or so level:

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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