Macro Morning

By Chris Becker 

Another board full of green with US and European stocks lifting overnight alongside Treasuries as the 10 year yield dipped below the 2% mark on some very dovish comments coming from the central bank wonks as the global manufacturing slowdown gathers pace. Gold saw a resurgence as USD fell slightly against the other majors, while oil prices fell sharply on the lack of OPEC co-operation.

Looking at the action in Asia yesterday where the Shanghai Composite retraced a little, falling about 0.2% to 3040 points but still well above the 3000 point barrier and holding on to the previous large bounceback. The Hang Seng Index reopened after its national holiday playing catchup and gapped over 1% higher to be just below the 29000 point level, making a new weekly and monthly high. Is it sustainable however and will the domestic ruckus overshadow this breakout play – I’m not sure this will stick on the open today:

Japanese share markets put in mild rises as the Yen went nowhere in the session, with the Nikkei 225 closing only 0.1% higher but still looking firm here at 21754 points. This breakout looks similar to the Chinese markets as well, but there’s more positivity around the selloff in Yen with futures suggesting a little better action today with the potential target still the April highs near 22500 points:

The ASX200 finished with a scratch result due to the banks selling off later in the session after starting well enough with the RBA cut hurting financials, closing at 6653 points. SPI futures are down 11 points, so I’m watching carefully for a potential inversion as the financial sector might struggle here to keep the rotten edifice up:

European stocks also started positively and while the FTSE put on some proper gains due to a falling Pound Sterling, the continental stocks struggled with the German DAX barely finishing in the green at 12526 points. I keep asking if these moves are still sustainable, with momentum showing exceedingly overbought signals so watch for support at the former daily highs at 12400 or so carefully:

On Wall Street it was about the same across the three major bourses, lifting around 0.2% with the S&P500 finishing at 2973 points. The daily chart still shows it ready to take on the 3000 point level and a better momentum reading with solid price action – but still, never mind the fundamentals:

Currency markets had a pause in USD strength overnight with the Euro consolidating here at just below the 1.13 handle. Flip this four hourly chart upside down though and you’d consider a breakout as the obvious next move, so I’m still watching the 1.1250 level for signs of a follow through, back down to the monthly low at the 1.11 level:

The USDJPY pair finally broke out of its short term symmetrical triangle as I warned yesterday, falling straight back below the 108 handle and unable to get near the dominant weekly downtrend line and still below the June highs. Trailing support at the mid 107s could be taken out next, but momentum is not yet negative enough to warrant it:

The Australian dollar came back after yesterday’s rate cut by the RBA, lifting up to the 70 handle but not above and still below the previous level reached late last week. I still contend there’s a lot of weakness here so I’m watching the low moving average for signs of a selloff:

Oil prices fell swiftly at the end of latest OPEC meeting despite a resolution about extending production cuts as the WTI contract fell nearly 4% to slump back below the $57USD per barrel level. It looks like staunch resistance at the $60 level was too hard to beat and a violent inversion like this is not unexpected. I’m watching for a follow through with another red candle close below the low moving average:

Finally to gold, which after selling off after its crowded topping action on Friday, has comeback with a vengeance, rising over 2% to get back above the $1400USD per ounce level and matching the previous high. Looks like the dip is over but I’m worried about the long selling tails above these identical daily highs that correspond to the yearly downtrend line above:

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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