Macro Morning

By Chris Becker 

It was an easy night for short USD traders as Fed chief Powell reiterated the central banks dovish stance, sending interest rates and King Dollar down and lifting stock markets and commodities. Oil spiked higher on a greater than expected inventory drawdown while base metals also rallied alongside gold, although Bitcoin took a tumble.

Looking at the action in Asia yesterday, where the Shanghai Composite just couldn’t get any traction, falling  0.4% to 2911 points.  The Hang Seng Index came back however after five straight lower sessions, closing 0.3% higher to 28205 points, still below the previous set of highs at 28500 but at least isn’t going any lower with support firming at 28000. This level must be supported for this  bounceback rally to continue or a full retracement back below 27000 points is probable:

Japanese share markets were joining in on the poor mood, with the Nikkei 225 taking back the previous gains to be down 0.15% at 21533 points. The USDJPY pair was hammered overnight which normally should provide a massive headwind to Japanese stocks, but given the reversal in risk sentiment, price should be supported here. I”m watching the extremes of the moving average band for signs of a breakout either way:

The ASX200 also bounced back after the previous scratch session, up 0.3% to 6689 points, still not getting any help by the falling Australian dollar. SPI futures are only up 5 points, so last night’s rally on Wall Street may not translate to anything here, not helped by a stronger Australian dollar too.  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 still can’t find any traction with losses across the continent and not helped by a reversal in Euro/Sterling weakness as the USD fell on Powell’s speech. The German DAX continues to fall the greatest, down over 0.5% to finish at 12373 points, setting up for a potential dip or swing play back to the previous breakout level around 12380 points as the uptrend line is broken:

Wall Street was all over the place until Powell’s testimony, then filling in across the board with the S&P500 up nearly 0.5% to 2993 points. Although only just below the psychologically important 3000 point level, all the signs from the BTFD/Powell Put crowd are there for this rally to continue higher:

Currency markets had all the action of course as the Fed chief confirmed the dovish status quo, with both Euro and Pound Sterling moving sharply higher against USD.  The union currency jumped about 50 pips to above the mid 1.12’s but stayed there without any further advances, which is telling for both short and medium term expectations. I’m watching the four hourly session highs for signs of a possible quick rollover here:

The USDJPY pair of course was slammed down on the USD weakness meme, heading straight back to trailing ATR support at the 108.30 level. If that level falls we can forget about any medium turn run back to the 109 level:

The Australian dollar actually had the biggest move, helped along by a rally in commodity prices with a sharp return back to the previous weekly low at the 69.50 level. This seems overdone but is ripe for a nice swing play if the last three four hourly candle highs can be beaten so watch the 69.70 level closely:

Oil prices broke out on a surprising bigger DOE inventory drawdown and some supply issues in the Mexico gulf with the WTI contract lifting nearly 5% higher to finish above the $60USD per barrel level. This almost clears the way for another ally up to the previous high at $66:

Finally to gold, which after failing to get out of its recent funk, found some support from Powell with the USD weakening and helping lift almost all undollars. It surged past the $1400 level to finish at $1418USD per ounce, just shy of resistance at the $1420USD level. If that breaks, we’re off again!

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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