Macro Morning

By Chris Becker 

The ECB met last night and adopted a very very clear easing bias with a new stimulus package, but it wasn’t enough for punch drunk risk markets with European stocks falling and pushing US bourses into the red on the lack of confidence. Durable goods in the US however surprised to the upside with initial jobless claims also steady, which caused US Treasury yields to rise, while the USD firmed across all the undollars.

Looking at the action yesterday, where Chinese stocks were positive and in lockstep with both the Shanghai Composite and Hang Seng Index advancing around 0.3-0.4%, the former up to 2937 while the latter is hovering around 28594 points. This put it slightly above the recent set of highs at 28500 as the market moves into a slightly bullish mood, but overall the trend remains sideways despite the lift in sentiment:

Japanese share markets had an okay day with only minor advances towards the end, with the Nikkei 225 closing only 0.22% higher at 21756 points. Last night saw the positively correleated USDJPY soar to new heights on the ECB stimulus, but with the risk market correlation with other bourses, futures are indicating falls this morning so we’re likely to end the week on a poor note back below the previous set of daily highs at the 21700 point level:

The ASX200 had another very solid showing despite falls in iron ore darlings like BHP (off 2%) and RIO (off 4.5%) as spot prices moved lower, banks filled the void to take the market to another record high, up 0.6% to 6818 points. SPI futures are indicating a big slump however, at least 0.5% down on the open with the daily chart showing a clear “KC” signal that it went up far too fast, putting paid to my skepticism recently:

European stocks were looking forward to the ECB meeting but were disappointed on the result, to say the least with the core markets falling the most. The German DAX slumped more than 1.2% to fall to 12362 points, not helped at all by a lower Euro, as this sends a very poor confidence signal to the market. The levels to watch are the previous extreme lows in the recent dip at the 12200 point level – if that fails, everyone will pull out here:

Wall Street was all over the place as a result with the volatile NASDAQ retracing more than 1% after its recent record high, while the broader S&P500 took back all its recent gains to fall 0.5% to be just above the 3000 point barrier. Price had been advancing firmly on the four hourly chart, breaking through last Friday’s session highs at the 3009 area, but resistance at the former highs at the 3022 area was too much given the lack of solid risk sentiment: read not enough punch from the ECB or Fed. This is a precarious market – watch ATR support at the 3000 point level closely:

Currency markets exchanged their relatively quiet sessions during this week with some stonking moves as the ECB through its hat in with its easing policy, plus the pesky overhanging Brexit thingy. Pound Sterling retraced back to its pre-Johnson low while Euro had a near 100 pip range, falling below the 1.11 handle and then almost above 1.12 on the ECB moves before settling at the mid 1.11’s. As I said yesterday the previous moves were “indicating a lot of pent up volatility ahead” and that’s what we got here with the possibility of more with the US GDP print later tonight:

The USDJPY pair jumped out of its recent near symmetrical triangle pattern with a solid 50 pip move higher on the ECB result with USD buyers jumping in. This takes the pair almost back to the early July highs near the 108.90 level but is vastly overbought and may require a small pullback before re-engaging again. Nice pattern breakout hey?

The Australian dollar however continued to fall smoothly, making this a wonderful currency to trade during almost any timeframe, inching lower to the 69.50 level. This is a nice oversold condition and ripe for more downside, watch the recent session lows at 69.40 or so for another breakdown:

Oil has moved almost nowhere with no news equalling no moves as both Brent and the WTI contract were unchanged overnight, the latter remaining below the $56USD per barrel level, almost on its recent support low. As I said previously there is still a chance for a follow through below ATR daily support here, so watch the intrasession volatility:

Finally to gold, which is facing a build up of pressure here, falling nearly $10 to get back to the $USD1415 per ounce level, after failing to make any new daily high recently  Price action remains below that significant downtrend line from the record highs which is proving heady resistance here for more bulls to climb back in, so I’m watching sentiment swings on the lower timeframes to discern direction:

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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