Macro Morning

By Chris Becker 

A mixed night on risk markets with US stocks retracing while the FTSE launched higher helped by a near three year low in Pound Sterling as hard Brexit becomes a reality. Interest rate and currency markets are poised for tomorrow’s FOMC meeting while commodities lifted slightly with gold eking out a new weekly high.

Looking at the action on Asian markets yesterday, where the Shanghai Composite drifted lower, closing 0.15% lower at 2941 points and still quite unable to get back above 3000 points while the Hang Seng Index fell sharply, down 1% to 28106 points. This takes out the recent support level at the 28100 point area for a stark breakdown, and although momentum is not yet negative this is a solid bear signal. I’m watching ATR support at the 27700 level for signs of a capitulation:

Japanese share markets were also hesitant despite the elevated USDJPY pair from Friday night as Yen strengthened throughout the session. The Nikkei 225 closed 0.2% lower to 21616 points as a result. Futures are still supportive here, so I’m still watching the previous set of daily highs at the 21700 point level for a breakout rally, with the low moving average as the uncle point as always:

The ASX200 was the standout, finally breaking through the November 2007 high intraday and closing 0.4% higher at 6825 points. SPI futures are up 30 points or 0.4% so its all cylinders go! But is it too much too fast? I would say so as all the bears have run away now, it won’t take a lot to push this over – keep stops close:

European stocks were relatively quiet with FTSE surging nearly 2% as the Pound collapsed, while the rest of the continent had scratch sessions. The German DAX was almost unchanged at 12417 points. The daily chart remains quite confused, although momentum remains positive and there’s been no new daily lows since the previous dip down to ATR support at the 12200 point level. Another market poised and ready to crack higher if the signals are right from the Fed:

Just as I said Wall Street can’t be stopped it retraces, with the NASDAQ off by 0.4% while the broader S&P500 fell 0.2% to remain above the 3000 point barrier at 3020 points. Resistance at the former highs at the 3022 area may yet prove to be too strong here with the four hourly chart showing bunching up and lots of intrasession selling once that level is reached. Medium term support remains very firm at the 2960 point level (horizontal black line) and momentum is somewhat overbought, but not over the top- wait and see here too:

Currency markets were defintiely not quiet last night with Pound Sterling falling over 160 pips while the Euro lifted slightly to get out of its current funk, currently at 1.1150 or so. There is a tentative bullish rising wedge pattern forming here on the four hourly chart, with momentum coming back, but again this may be pre-positioning before the FOMC meeting, so I’m keeping stops tight here:

The USDJPY pair is ready to breakout on its own and last night saw the 109 handle come under threat but not yet broken through. Today’s BOJ meeting may provide that catalyst with a move above the early July highs at the 108.90 level everyone is watching even before tonights FOMC meeting. The upside target is the April highs nearer the 112 handle:

The Australian dollar is slowly decelerating into the 69 handle here before the FOMC meeting as the bears round up their profits. Today’s building approvals data might provide a small catalyst so watch out this morning, but really its about the overseas moves in USD. This looks considerably oversold, but has the potential to fall even further:

Oil is still tracking sideways although some speculation overnight saw the WTI contract rally slightly to finish above the $57USD per barrel level, after recently threatening to breakout below the support low. As I said previously there is still a chance for a follow through below ATR daily support, so watch the intrasession volatility but also the high moving average on the daily chart for a breakout:

Finally to gold, which continues to face a build up of pressure, lifting slightly again to get back above the $USD1426 per ounce level, now making a new weekly high.  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 – the FOMC meeting will provide this perhaps:

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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