Macro Morning

By Chris Becker 

The possible revocation of the Fed put combined with the Iranian seizing of a British tanker saw risk sentiment reverse again on Wall Street following a positive close here in Asia. The amount of easing priced in at the July Fed meeting has dropped to an average of only 30 basis points while Treasury yields and the USD gained in the confusion over the NY Fed’s comments previously. Oil prices pushed higher after the close and are likely to continue their ascent this week as the tensions rise in the Gulf.

Looking at the action in Asia on Friday first, where the Shanghai Composite finally put in a solid session and closed 0.8% higher at 2924 points while the Hang Seng Index was even more positive with a 1% plus finish to 28765 points. This puts the bourse back above its previous set of highs at 28500, confirming the bullishness on the daily chart however this may be overshadowed by the Wall Street falls, so I’m watching the low moving average level at 28300 to come under pressure today:

Japanese share markets rebounded strongly after a short week that saw them dip to new weekly lows, with the Nikkei 225 gaining more than 2% to close at 21466 points, but still leaving it in a precarious position. With the gains in the positively correlated USDJPY pair on Friday night there should be somewhat of a tailwind here, but the uneasiness over risk sentiment is likely to see a stalled session today. I’m still positioning here for a possible break below the 21000 point level:

The ASX200 also had a good finish after somewhat of a mixed week, closing 0.7% higher at 6700 points exactly. SPI futures however are down nearly 30 points or 0.4%, as that positive lead from Wall Street evaporates. So it looks like another sideways trend here again after such a long rally – not a good medium term sign:

European stocks were doing well until the Wall Street open, but fell as a lack of confidence took hold with the German DAX barely managing a 0.2% gain for the session to finish at 12260 points. The daily chart still looks anemic here to say the least as price struggles at the ATR support level at 12200 points and while momentum is not yet negative, unless there is a better sentiment change coming soon its not looking good:

Wall Street had a sordid night dealing with the communique from the Fed and the tensions in the Gulf, with tech stocks hit the most, while the S&P500 closed 0.6% lower to 2976 points. This makes for an ominous bearish engulfing candle on the daily chart, with a new session low to boot following that rising wedge pattern. There’s likely to be a further dip back to the previous highs at the 2955 point level before gauging market sentiment thereafter – better not be any more poor earnings from the majors:

Currency markets had the biggest fun to end the week with lots of volatility around the Fed put meme as the USD oscillated from weakness to strength. The Euro fell swiftly to the 1.12 handle, not making a new low but looking precarious here at a key psychological level:

The USDJPY pair bounced back and almost hit its straps above the 108 handle before coming back later in the session to finish the week at the 107.80 level. The four hourly chart shows how overhead ATR trailing resistance remains too far away to be threatened, and despite the Friday night bounce, this has been a good Yen buy so far. With the wedge low at 107.80 taken out the next stage is the June lows at 106.80:

The Australian dollar has been the smoothest pair in this whole mess with a nice series of sedate red candles bringing it down gently just above the previous daily highs at the 70.40 level. As I said last week, the previous move was overdone anyway and ripe for a dip but can it follow through all the way to the 70 handle or below this week?

Oil prices at first rallied on the Iranian tanker seizure but failed to capitalise on the move with the WTI contract closing just below the $56USD per barrel level  again, almost making a new daily low. There is chance for a follow through below ATR daily support here and a full retracement back to $50 – volatility beckons as usual:

Finally to gold, which had been the best benefeciary of an easing Fed, soaring out of its pennant pattern here to a new six yearly high before this was brought back sharply on Friday night to the previous set of highs around the $USD1425 per ounce level. Technically a bearish engulfing candle too and right on that significant downtrend line from the record highs – what a market to play!

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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