Macro Morning

By Chris Becker 

On Friday afternoon I suggested we were seeing an alignment of dead cat bounces across risk markets – a clowder if you will – and Friday night saw US markets rollover as the USD spiked higher against almost everything. Overshadowed by the Scomo victory here locally, US/China trade tensions are as high as ever and this is translating into marked increases in volatility with a lot of expected gaps higher and lower this morning on the Asian open.

Friday saw Asian markets start to rollover with the Shanghai Composite falling sharply, closing 2.5% lower to 2882 points while in Hong Kong, the Hang Seng Index fell 1.2% to close below 28000 points again. This was the first of the dead cat bounce rollovers on the daily chart, with futures suggesting a return to the terminal lows at the mid 27000 point level. Momentum is not yet heavily oversold and does support a move lower from here:

Japanese share markets were the standout, with the Nikkei 225 closing 1% higher to 21250 points despite a reversal in Yen weakness.  Futures however are pointing to retreat this morning even as Yen weakened on Friday night, so while price remains off the February/March lows but I’m still wary of this turning into another dead cat bounce:

Australian stocks have done well despite all the noise plus the looming election with the ASX200 lifting another 0.6% to be at 6365 points with a lovely breakout on the daily charts. SPI futures are suggesting a pullback but only minor as the market will love the non-franking credits “disaster” that has been fear mongered throughout the election cycle. This move higher is really dependent on a lower Australian dollar:

European stocks are slipping in confidence despite a much lower Pound Sterling and Euro with the German DAX slipping 0.6% to 12238 points, unable to make any new highs with what looks like a rollover here on the daily chart. Momentum was coming back strongly as price bounced off the key support level at 12000, but this relief rally needs to gain more steam before calling this dip phase over:

Wall Street did even worse, with tech stocks dragging the mood down, with the S&P500 eventually closing 0.6% lower to 2859 points, also unable ot make any new session highs, all indicative of a dead cat bounce with daily momentum still not yet positive. Another low and we’re back down to terminal support at 2800 points:

Before a look at the more traded currency markets, its still very illustrative to look at the rise in the USD/Yuan pair with the PBOC really letting itself go, taking the fixed currency back to its yearly lows against King Dollar in the wake of the trade war. Reaching the 7 handle is a distinct possibility here soon:

It was all about USD with Pound Sterling falling straight through the 1.28 handle into the low 1.27s while Euro fell to a new weekly low and remained well below the 1.12 handle. The four hourly chart continues to show the bears in charge here, although a nascent falling bullish wedge pattern is stating to form at these low levels, so I’m watching for a potential bounce higher:

The risk proxy USDJPY pair is confusing things by breaking out of Friday, now above the 110 handle proper and looking to gap even higher here on the open this morning. This may just be short covering or a continuation of the risk inversion, so I’m watching trailing ATR resistance carefully:

The Australian dollar accelerated its selloff on Friday but early trade this morning suggests a big gap higher to the 69 handle on the back of the federal election. It remains to be seen if this can turn into a relief rally as new resistance at 69.60 (former blue trailing support) is very strong, with the 70 handle a distant memory:

Oil prices continued to firm on the hawks circling Iran with the WTI contract finishing just below the $63USD per barrel level not quite following throguh on its recent breakout. This move could see the start of a re-engagement of the previous weekly uptrend, with my short term target at the former highs near $66:

Finally to gold, which confirmed its inabiltiy to buck the trend against a strong USD, failing recently to punch through the key $1300USD per ounce level, and rolling over agian to finish at the $1277 level. This takes it closely back to the previous bottom with $1260 or so the downside target here:

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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