Macro Morning

By Chris Becker 

With the long weekend at hand in the US, risk markets on Friday night finished the week in a slightly upbeat mood, more in relief than in actual rebirth of the former risk rally. Concerns over the US trade war with China, the potential shooting war with Iran, the chaos in the UK with PM May resigning in the wake of the divisive Brexit slow death and the rise of far right nationalism in Europe show there’s still a lot of trouble to worry about out there, let alone locally.

Friday saw Asian stock markets mixed across the board with the Shanghai Composite barely moving and finishing in a depressed mood at 2853 points, while the Hang Seng Index lifted 0.3% to 27361 points after previously breaking down to a new monthly low. This is nowhere near close enough to call it over with momentum still very oversold:

Japanese share markets were down slightly with the Nikkei 225 closing 0.16% lower to 21117 points while the broader TOPIX finished with a scratch session.. Futures are pointing to a better response this morning despite the much stronger Yen, all on the back of better sentiment on Wall Street overnight but this is definitely a catching knives scenario with no risk involved here until price can stabilise above the 21400 point area:

Australian stocks put in the worst session in the region with the ASX200 falling 0.5% to remain below the 6500 point barrier it burst earlier in the week, closing at 6456 points. SPI futures are down just a few points as the local market will be listless without direction from the US, but also due to the recent rise in the depressed local currency. Clearly this is a market that’s well overbought and ripe for a pullback, so watch the 6400 point area very closely:

European stocks finally put some runs on the board despite a stronger local currency with the German DAX illustrative of the wider mood by climbing nearly 0.5% to just get above 12000 points again. The daily chart is still looking very weak with daily momentum not yet positive, but no new daily low’s but the bears remain with the upper hand here, so be wary:

Wall Street wants to be more upbeat going into their long weekend, but they shouldn’t be with a variety of catalysts potentially spoiling the mood on their return tomorrow. The S&P500 barely closed a few points higher with to 2826 points after being much higher mid session. The daily chart is still displaying a classical bearish head and shoulders pattern, the recent dead cat bounce forming the right shoulder. It’s easy to play this – a fall below the neckline at 2800 points will precipitate a wider selloff and a full correction:

Volatility in currency markets continues which is good for intraday traders, not so good for longer term planning with a rally in Pound Sterling and Euro returning both to a weekly high for a change. The latter broke through the 1.12 handle on the back of the rally post the ECB minutes release but I did consider this overbought with too tough resistance to get through, but proven wrong here. I’m watching the solid black line that denotes weekly support and see if price stabilises here tonight:

The USDJPY pair continues to dive on the poor mood with safe haven buying seeing it remain well below the 110 handle and almost back to last week’s pre-breakout lows.  With support gone at 110 and now resistance, the next level down is the 109.20 terminal support area where it could find some support for a small swing back higher:

The Australian dollar finally found some life with a relief rally back up through the 69 handle, also slightly beating trailing ATR resistance at the 69.20 level. But momentum and the last four hourly candle indicates this looks done with the inability to make a new weekly high, so I’m watching the 69 cent level closely in todays session for signs of an inversion:

Oil prices are desperately trying to comeback after their recent snap selloff on the back of the poor DOE inventory report with the WTI contract lifting about 1% higher to finish just below the $59USD per barrel level, but still at a monthly low. I’m watching the daily lows at the $57.50 level carefully for signs this could go even further than expected with $52 the nearest support level:

Finally to gold, which is vainly trying to come back as well, rising on Friday slightly to finish the week at the $1285USD per ounce level after almost reaching the previous bottom. Note how momentum was never oversold (below -100) and is now positive, but still needs a lot more interest here to get back to the $1300 level as the overall price trend remains down:

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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