Macro Morning

By Chris Becker 

Overnight markets were effectively sidelined by traders waiting for Fed Chairman Powell’s testimony with European stocks retreating while US stocks put in some minor gains, led by tech issues on the NASDAQ. Interest rates nudged higher with the 10 year Treasury up to 2.07% as the chance of a rate cut from the Fed in July dropped slightly again, while the USD remained strong against the undollars.

Looking at the action in Asia yesterday, where the Shanghai Composite continued its recent poor showing, with a small afternoon rally filling a gap to close only 0.2% lower at 2928 points.  The Hang Seng Index however followed through and fell nearly 0.7% lower to 28116 points, remaining well below the previous set of highs at 28500 and now in full dip mode below the low moving average. As I said yesterday the 28000 point level which must be supported for this temporary stall in the bounceback rally to continue or a full retracement back below 27000 points is probable:

Japanese share markets were the standout because of a lower Yen with the Nikkei 225 closing 0.14% higher at 21565 points. Although the USDJPY pair remained high overnight, futures are suggesting another quiet session today in line with coordinated poor market sentiment, so for now, watch short term support at the low moving average to remain firm:

The ASX200 put in a scratch session with a very minor loss to be down 0.1% to 6665 points, still not getting any help by the falling Australian dollar. SPI futures however are quite boisterous, up at least 30 points with bulls wanting to push this market higher for any reason. Medium term support at 6550 points remains quite firm, so for an uncle point to ride the next wave higher makes sense, but I’m cautious:

European stocks gapped down but managed to fill some of the losses and then advance in post close futures as US stocks rallied. The German DAX was the biggest mover, falling nearly 0.9% to finish at 12436 points, retracing back from its series of lower daily highs as momentum continues to wane. This sets up for a potential dip or swing play back to the previous breakout level around 12380 points or even further if that tentative uptrend line is broken:

Wall Street was all over the place as traders remain nervous going into tonights Powell speech, with the DOW treading water while the NASDAQ advanced the most, up 0.5% while the S&P500 managed to eke out a 0.1% rise to 2979 points. This is still just below the psychologically important 3000 point level and I’m watching the previous high at the 2960 level to come under pressure next if Powell’s testimony doesn’t provide the punt the market needs:

Currency markets remain quiet again as both Euro and Pound Sterling melt lower in continuation of the price patterns of last week.  The union currency remains below its weekly long held support level at the 1.1270 area and is threatening 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:

The USDJPY pair however wants to go higher but managed to stall out at the 108.90 level overnight, possibly overbought but still looking bullish here. I’m watching the low moving average level at 108.70 for any signs of weakness but once that 109 level is popped it sets up a run to 112:

The Australian dollar flopped straight through its previous weekly low at the 69.50 level and almost threatened to break into the 68’s last night. This is despite a rally in commodity prices and shows the markets lack of confidence in the Pacific Peso. While now considerably oversold if 69 cents is broken, the former lows at 68.30 are next:

Oil prices remain are climbing higher on a bigger drawdown in US crude stocks with the WTI contract lifting to finish above the $58USD per barrel level. This provides a better launch point to try and beat the resistance level at $60 particularly if more oil tankers are seized in the gulf:

Finally to gold, which after failing to get out of its recent funk, found some minor support overnight to finish slightly higher at the $1397USD ounce level. Resistance at the $1420USD level is the only are to watch on the upside because if it can’t be broken soon – and this may hinge on the Fed’s direction, so watch Powell tonight – watch ATR support at $1370 to come under swift pressure:

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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