Macro Morning

By Chris Becker 

The biggest event on the economic calendar – US unemployment or non-farm payrolls (NFP) – on Friday night shook up risk markets as the strong print markedly reduced expectations of further interest rate cuts by the Federal Reserve. This saw the USD soar, Treasury yields also increased, with gold smashed back below $1400USD per ounce.

For Asian markets this puts a significant headwind into this week’s trading with futures indicating sluggish starts to most share markets.

Looking at the action in Asia on Friday before the NFP print, where the  Shanghai Composite set the mood by basically remaining still, eventually closing only 0.2% higher to 3011 points as it briefly dipped below the 3000 point barrier earlier in the session. The Hang Seng Index also put in yet another scratch session, down slightly to 28774 points, still unable to make good on the previous breakout and although it remains above the previous set of highs at 28500, price action is suggesting a dip to start the week:

Japanese share markets basically tread water with no leads or economic events to go on although the recent household spending survey was much better than expected. The Nikkei 225 closed only a handful of points higher at 21746 points, still unable to make a substantive  new session high. A much higher USDJPY pair from Friday nights NFP should be more supportive but futures are indicating a flat session to start the week:

The ASX200 made another new record high to finish the week, closing 0.5% higher to 6751 points, as everyone goes all in on another new bull market with no risks whatsoever! SPI futures are down 12 points given the lack of a positive lead from Wall Street, so the race back to the 2007 highs will have to rely on a much lower Australian dollar, although we are overdue for a retracement as short term price action is a classic false break higher move:

European stocks waited in vain for a supportive NFP print and despite a big drop in domestic currencies, particularly Pound Sterling, it was a poor finish to the week on Friday. The German DAX fell nearly 0.5% rise to finish at 12568 points, unable to make a new daily high as momentum inverted from high overbought levels. This sets up for a potential dip or swing play back to the previous breakout level around 12380 points or so:

Wall Street reopened post the wet July 4th holiday and were wanting a soft unemployment print to keep the Powell Put in check, but were disappointed by a strong result, with the S&P500 closing with a scratch session, down a handful of points to 2990. This keeps it below the psychologically important 3000 point level and in sight for a short term dip as no new daily high has been made. I’m watching the previous high at the 2960 level to come under pressure:

Currency markets were very quiet leading up to Friday’s NFP print and then volatility spake like Zarathrustra on the strong result with the Euro and Pound Sterling sold off quickly. The union currency fell below its weekly long held support level at the 1.1270 area and threatened to break below the 1.12 handle. As I said last week, price action was suggesting a flip over and a move back to the April lows, although tonight may see a small rise on the oversold action:

The USDJPY pair was nearly the inverse but did give some predictability away leading up to Friday night with a small melt higher in terms of higher lows, before shooting out and making a new weekly high to get above the 108 handle. This action however has all the hallmarks of too much, too fast and I’m expecting a small retracement before watching the next move:

The Australian dollar flopped back below the 70 handle after staging itself to hover above the previous level reached late last week. This has been a big shift in sentiment as the potential for Fed rate cuts declines and perhaps even surpasses the RBA’s bent. I’m watching the session lows on the four hourly chart for a further inversion below the 69.50 level:

Oil prices were relatively stable amid the hubbub with the WTI contract lifting slightly to finish just below the $58USD per barrel level. It still looks like staunch resistance at the $60 level remains too hard to beat but I’ll continue to watch the recent daily lows to see if they’re being supported for signs of a possible violent melt up higher:

Finally to gold, which after making repeated attempt to breakout and beat the long running downtrend line overhead, the rug was pulled out on Friday night as the shiny metal flopped back below the $1400USD per ounce level. This to me almost seals its fate, but I’ll watch ATR support at $1370 to hold here first before making dire downside predictions on a single NFP print!

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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