Macro Morning

By Chris Becker 

A big night on risk markets with stocks breaking out of their funk on Wall Street, helped along by the notion that Trump maybe visiting the Chinese Premier next week. This lifted commodities across the board and their proxies, including the beleagured Australian dollar, while dovish comments from Super Mario saw interest rates fall with 10 year Treasuries sharply down to the 2% yield level and German Bunds to record lows.

The economic calendar is relatively quiet in Asia today with the local Westpac Leading Index first up this morning.

Looking at yesterday’s action first, with the Shanghai Composite falling nearly 0.3% before stabilising with a scratch session to finish just below the 2900 point barrier, while the Hang Seng Index bounced again, lifting 1% higher to 27498 points. The daily chart was stabilising somewhat here but futures are indicating a solid break above ATR resistance, so we should see a nice rally that has the potential to follow through:

Japanese share markets were the wet bag for the party as Yen strengthened, with the Nikkei 225 falling 0.7% in a sharp selloff, closing at 20972 points. This is to be reversed today despite almost no positive correlation with movement in Yen, with futures suggesting a push back up to the 21000 point barrier, which should arrest the decline since early May:

The ASX200 however made good on the RBA minutes by surging over half a percent, closing at 6567 points.  SPI futures are up solidly on the breakout on Wall Street, at least 0.5% or so, but I’m still watching for a confirmed break back above the high moving average:

European stocks got out of their own funk with the Draghi comments helping support risk assets, with the FTSE pushin 1% higher while the German DAX surged over 2% to significantly move over very firm resistance at the 12200 point barrier. The daily chart no longer looks weak with this bullish engulfing candle, with former ATR resistance swinging to support here for a push to beat the April highs near the 12500 level:

Wall Street didn’t have to wait for the Fed put, instead they got the orange squeeze from Trump’s twittersphere, with all bourses pushing higher, but again tech stocks led the way with the NASDAQ up over 1.4% while the S&P500 finished almost 1% higher to 2917 points. This pushed it back above the psychologically important 2900 point level, where daily highs had been posied for over a week now with positive momentum behind it. The next upside target is obvious at the former April highs near 2960 points:

Currency markets were in motion overnight due to all the central bank wonks talking with the USD still flexing its muscles against the majors despite the Trump/Xi fallout. The Euro flopped on dovish comments from Mario Draghi, falling back below the 1.12 handle with the four hourly chart showing a return to weekly support levels. I’m watching the next key support level at 1.1180 closely for even more downside action:

The USDJPY pair is still trying to get out of its bottoming pattern here with a volatile session overnight not providing any directional indication. Price has been unable to get anywhere near the trailing ATR resistance at the 108.70 level, as this now two week long resistance area remains very stubborn, but at least support at the 108 handle has been confirmed:

The Australian dollar finally saw some upside action as risk correlation kicked in with a strong leap back above the monthly support level (solid horizontal black line) at 68.70, finishing this morning just above but not through trailing ATR resistance. This has been a timely bounce because as I said previously, this monthly support level could disappear quickly if the USD uptrend continues:

Oil prices also got in on the volatility with more suggestions that Iran is to blame for the Gulf attacks with the WTI contract surging to finish just above the $54USD per barrel level in a strong session overnight. Price action is showing a clear bottoming action here with this session high matching one previously, so watch for a breakout above the $54.50 level:

Finally to gold, where nothing is taking away the hope of the bugs, still pushing higher despite the stronger USD with another optimsitic session to finish at the $1346USD per ounce level in a new daily high. While this still looks like a blowoff event for mind and I’m continuing to watch gold at the hourly and four hourly level this week for signs of profit taking, there’s also the potential for a second blowoff breakout as its now poised at the former highs near $1350:

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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