Macro Morning

By Chris Becker 

Wall Street was all over the place last night after European markets improved following a dour start to the week here in Asia. Tech stocks dragged the NASDAQ down significantly as regulatory issues surrounded the sector, while most industrials slipped on ongoing trade concerns as Tariff Trump had tea with the Queen. The real moves were in currency markets with St Louis Federal Reserve President Bullard indicating a rate cut in 2019 was on the cards, sending the USD plummeting against the majors and gold alike. This overshadowed the slowdown in the important US ISM print with 10 year Treasuries hitting a new low for the year.

Yesterday saw Asian stock markets start the week with a decline, although the Shanghai Composite was a standout by only falling 0.3% but still closed below the critical 2900 point level. The Hang Seng Index was down by over 0.5% at one stage, but managed to close with a scratch session at 26893 points. The daily chart had been showing a deceleration pattern with a target at the 27000 point level but poor sentiment continues to weigh, slowly pushing the market below this level. I’m watching the daily lows here for signs of an inversion, with a small probability of a swing higher:

Japanese share markets fell sharply with the Nikkei 225 finishing 1% lower to 20410 points, almost ready to tackle the key terminal and psychological support level at 20000. Futures are up this morning despite the volatility on Wall Street and stronger Yen overnight, but the oversold mood could see a sharp swing higher on any increase in sentiment:

Australian stocks finally stepped in line with their Asian brethren, the ASX200 falling nearly 1.2% lower at 6320, finishing well below previous support at 6400 points. SPI futures however are up 19 points on the rebound on industrial stocks Wall Street but the technical picture remains nearly oversold with momentum not yet negative on the daily chart. We should see a lot of buying spport at the 6250 point level going into today’s RBA:

European stocks lifted slightly, despite quite a bit of continental economic volatility, as the latest UK manufacturing PMI came in for a retraction, signalling the Brexit woes. Higher domestic currencies didn’t dampen the mood as expected with the German DAX bouncing back and closing 0.5% higher, but still just below previous key support at 12000 points. The daily chart remains in a weak position here with oversold momentum and while this candle looks good for bottom pickers, its not of the engulfing kind (higher high than Friday’s open and high) so caution abounds:

Wall Street was literally all over the place with the Dow advancing, the NASDAQ falling over 1.6% while the S&P500 eventually finished only 0.2% lower after being down significantly mid-session. The bearish head and shoulders pattern on the daily chart remains confirmed until a solid rebound above 2800 points is underway, so apart from a high risk/reward swing play here there’s not yet a signal to be long:

Currency markets went nuts following Bullard’s comments, with the Euro doing the heavy lifting to soar above the 1.12 handle, breaking out of its recent funk. The four hourly chart shows the build up starting on Friday night and then accelerating through yesterday’s session to a very overbought position last night. It remains to be seen if this is sustainable above the mid 1.12’s with a slight retracement to the dominant downtrend (declining black line) probable:

The USDJPY pair was therefore under a lot of stress with the USD weakening across the board and while it matched the previous lows just above the 108 handle, it didn’t break down. This could happen in today’s session but there is a small band of buying and selling pressure developing between 108.30 and 108 proper, so I’m watching the upper level for a possible breakout:

The Australian dollar almost got to the 70 cent level overnight on Bullard’s comments, in a very firm move ahead of today’s RBA meeting. This looks overstretched to me and could find a lot of trader’s backpedalling, although if the RBA does the usual expectation subversion, there may not be a rate cut after all. The key support level to watch is former resistance at the 69.30 level:

Oil prices remain depressed on the back of the DOE inventory report and despite John Bolton’s warmongering, its not going anywhere higher soon with the WTI contract remaining below the $53USD per barrel level overnight. Last week’s massive slump should find support here at the previous monthly resistance level and is my target for the overall inversion, but oil has a volatility all of its own and could break below here:

Finally to gold, which after finding some buying support on Friday has surged overnight on the USD inversion, lifting over $20 to finish at the $1325USD per ounce level, bursting through previous key resistance at the $1300 level. This is a big move and takes out all the short positions, equating to the March highs with the next level not far away at the monthly highs at $1340 or so. Are we seeing a big return for the shiny metal?

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!

Comments are hidden for Membership Subscribers only.