Macro Morning

By Chris Becker 

Friday night saw US shares advance even further as the prospect of the Fed cutting rates firmed, while the USD lost ground against all the undollars except gold. US Treasury yields rose to a one month high but still unsettled with a much firmer than expected PPI print backing up the recent CPI print.

It should be a solid start here in Asia this week with a positive risk sentiment tailwind and lower USD, but there’s a slew of important Chinese data coming down the pipeline today, with the GDP print the obvious catalyst.

Looking at the action in Asia on Friday, where the Shanghai Composite is finally gaining some traction, up 0.4% to close at 2931 points.  The Hang Seng Index was up about the same but retraced in the afternoon to only gain about 0.15%, closing at 28471 points. Again, the market has been unable to consolidate above the previous set of highs at 28500 but support remains firm at 28000, and thus there is no price signal here but to wait for a breakout:

Japanese share markets were mixed with Yen firmness upsetting the TOPIX while the Nikkei 225 only up 0.2% or so at 21685 points. The USDJPY pair fell swiftly on Friday night so this will prove somewhat of a headwind today, but futures are indicating a firm start to the week.As usual, I’m watching the upper/lower bands on the moving average to give signals of intent, with the bulls having the slight edge:

The ASX200 was the loser for the day and the bunch, closing down 0.3% to be back below 6700 points. SPI futures are also down nearly 30 points,  as a stronger Australian dollar is weighing on the local market. The daily chart is suggesting a possible dip here as the momentum divergence grows ever stronger, so I’m watching the low moving average line at ca. 6600 points for signs of trouble:

European stocks also remain in a strange divergence with peripheral markets still moving higher while the core is falling, evidenced by another poor showing by the German DAX which fell 0.1% on Friday night to finish at 12323 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 however is all guns blazing with a surge across all three major bourses with new record highs taken out, there’s no place for bears to hide. The Dow was the best mover, up nearly 1% after previously hitting 27000 points for the first time ever, while the broader S&P500 closed 0.4% higher at 3014 points, finally taking out that psychologically important level. As I said last week,  all the signs from the BTFD/Powell Put crowd are there for this rally to continue higher – why stand in the way? But it is tempting to start hedging here with some very cheap options:

Currency markets were again an interesting risk dynamic on Friday night with the USDollar Index falling 0.3%, the Euro not being the main contributor for once as the union currency remained at the mid week high nearer 1.1270 or so.   I’m watching the four hourly session highs here for signs of a probable breakout to the upside with momentum clearly behind it:

The USDJPY pair was the biggest sufferer however, with a new weekly low right on the bell, forcing the pair back below the 108 handle after previously taking out trailing ATR support at the 108.30 level. This has been a swift reversal despite the positive PPI print, and looks somewhat crowded to me, but follow price first is my mantra:

The Australian dollar also kept on the heat and finished the week just above the 70 handle, not quite making a new weekly high, but a great week for Aussie longs nonetheless. I’ve been expecting a retracement all week and have been wrong about it the whole time as USD weakness continues to overshadow internal signals here. The next level to watch is the obvious weekly high at the 70.50 area:

Oil prices kept above their breakout level as the storm in the Mexican Gulf is putting supply under threat with WTI still holding bove the $60USD per barrel level. This almost clears the way for another rally up to the previous high at $66, but this stall period must move soon:

Finally to gold, which after providing a lot of intraday volatility for traders is not doing much for those of us looking for directional plays, because even though it finished the week above the $1400USD per ounce level there has still been no new daily highs. The obvious level to watch here is obvious at $1420 – if cleared, everyone will pile in:

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!

Comments are hidden for Membership Subscribers only.