Macro Morning

By Chris Becker 

A stronger than expected 2Q GDP print on Friday night gave US stocks a big goosing, with new record highs, as the USD also put in a two month high with Euro at two year lows against King Dollar. The Fed looks set still to cut rates when it meets tomorrow – around 0.25% is priced in – despite the strong GDP print, which maybe overshadowed by a big week in US earnings reports.

Looking at the action on Asian markets on Friday, where the Shanghai Composite lifted 0.25% but has been unable to finish the week above 3000 points while the Hang Seng Index fell sharply, down 0.7% to 28397 points. This put it back below the recent set of highs at 28500 as the market moves towards a more cautious mood and frustratingly sideways too with very easy to discern breakout and breakdown points at the 28700 and 28100 points respectively:

Japanese share markets retreated despite a much weaker Yen in the previous session with the Nikkei 225 closing 0.4% lower to 21658 points. Friday night saw the positively correleated USDJPY maintained its breakout point but no further, so risk market correlation with US markets are helping more so here with futures indicating a better start to the week. I’m watching the previous set of daily highs at the 21700 point level for a breakout rally:

The ASX200 finished just below the 6800 point barrier by falling 0.4% in sympathy with overnight markets, closing the week out at 6793 points. SPI futures are up 20 points or 0.3% on the Wall Street surge, so we should see another bumper record today, but watch iron ore stocks carefully:

European stocks remain a big hamstrung by the ECB, wanting to rally but only getting mixed signals on risk appetite. Following its post ECB meeting slump, the German DAX managed to put a few runs on the board Friday night, lifting about 0.4% to close the week at 12419 points. The daily chart is quite confused, but the takeaways are that momentum remains positive and no new daily lows since the previous dip down to ATR support at the 12200 point level mean the bulls remain somewhat in charge:

Wall Street can’t be stopped – this is like 2006 all over again – with the broader S&P500 leading the charge to close 0.7% higher to well above the 3000 point barrier at 3025 poins. Price had been advancing firmly on the daily chart, breaking through last Friday’s session highs at the 3009 area, but this time resistance at the former highs at the 3022 area finally punched through. Medium term support remains very firm at the 2960 point level (horizontal black line) and momentum is somewhat overbought, but not over the top. BTFD remains the key strategy!

Currency markets were relatively quiet on Friday night in response to the US GDP print, with the USD advancing against almost everything in a smooth-ish fashion. Pound Sterling had the greatest falls as the realisation of a hard Brexit continues to dawn, while the Euro melted down towards the 1.11 handle. There is a tentative bullish rising wedge pattern forming here on the four hourly chart, but momentum is poised for another rollover:

The USDJPY pair is at a crossroads as the daily chart clearly shows, ready to breakout above the early July highs near the 108.90 level but somewhat overbought in the short term. The FOMC meeting will determine the medium term direction here with the potential for a breakout back to the April highs:

The Australian dollar accelerated in its selloff, falling straight down to the 69 handle on Friday night and where it stands this morning. Momentum is nicely oversold here, and could be signalling more downside, but like Yen, traders are positioning for tomorrows Fed meeting:

Oil remains in a nowhere cage with yet another staid session on  Friday night with the WTI contract unchanged to remain just above 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 continues to face a build up of pressure here, lifting slightly to get back above 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 but the series of higher lows since late June is pointing to the potential for a breakout:

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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