Macro Morning

By Chris Becker 

A big spike in US interest rates overnight still couldn’t hold back the Dow making a new record high, although the broader S&P500 failed to get over 3000 points again. European stocks continued to wobble while the USD barely moved following the latest core inflation data.

Looking at the action in Asia yesterday, where the Shanghai Composite was unable to get traction again, treading water to be up only a handful of points, closing at 2917 or barely 0.1% higher.  The Hang Seng Index however continued its come back with a solid 1% rise, closing at 28431 points, just below the previous set of highs at 28500 as it bounces off support at 28000. The daily chart still looks quite relaxed here however, with prices within the sideways moving average band, so I’m not expecting much upside today, watching the high moving average level at 28600 for a possible breakout:

Japanese share markets did well despite a much stronger domestic currency, with the Nikkei 225 lifting 0.5% to close at 21643 points. The USDJPY pair came back overnight and coupled with the new highs on Wall Street should provide a better tailwind for Japanese stocks, but this market continues its sideways shuffle with not much expected today. As usual, I’m watching the upper/lowe bands on the moving average to give signals of intent:

The ASX200 also bounced back by soaring above the 6700 point level for a record high, up 0.4% to 6716 points, with bank stocks largely laughing off APRA’s wet lettuce capital charges. SPI futures are surprisingly down nearly 30 points, so it will be interesting to see if last night’s moves on Wall Street can translate into a strong finish to the week here, as a stronger Australian dollar may not be helping too. The daily chart is suggesting another sideways move with lots of overhead tails indicating not much buying support at these levels:

European stocks remain in a strange divergence with peripheral markets like Italy and Spain moving higher while the core is falling, evidenced by another poor showing by the German DAX which fell 0.3% to finish at 12332 points. The daily chart shows the potential dip for a wider retracement if ATR support at the 12200 point level is not supported tonight:

Wall Street remains a place of contradictions as well, with the Dow hitting 27000 points for the first time ever, while the broader S&P500 sold off later in the session because inflation was “too high”, although it eventually recovered to close 0.2% higher at 2999 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 – why stand in the way?

Currency markets were an interesting risk dynamic overnight – bonds got most of the attention – with expectations of a follow through in USD weakness after Powell’s testimony, but the higher than expected core inflation print put paid to all that. The Euro retraced slightly to the mid 1.12 level after trying in vain to break above the 1.13 handle. I’m now watching the four hourly session lows for signs of a possible quick rollover here as momentum is wavering and not signalling further advances:

The USDJPY pair came back the most on the inflation print after the swift reversal previously, heading straight back to previous trailing ATR support at the 108.30 level. Interestingly the low reached was not lower than last week’s so medium term price targets at the 109 handle remain intact:

The Australian dollar also kept on the heat although it waned late this morning to finish just below the 70 handle, not helped by a divergence in some commodity prices,namely iron ore.  I suggested yesterday that this bounceback seems overdone with momentum on the lower timeframe charts still not indicating a sustained rally yet, so watch the low moving average here on the four hourly at the 69.60 level for signs of a pullback:

Oil prices kept above their breakout level as the storm in the Mexican Gulf is still putting supply under threat with Brent advancing more, but WTI still 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 is providing a lot of intraday volatility for traders but not much in direction, this time falling again on the core inflation print and finishing just above the $1400USD per ounce level. Still no new highs, but a series of higher lows is suggestive that the bulls are nowhere near giving up here for a breakout above $1420:

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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