Macro Morning

By Chris Becker 

A very busy night on risk markets with a much higher than expected CPI print taking the bottom out of European stocks who were expecting the easy ECB to keep things inflated, while a booming US consumer also highlighted the risk of a less dovish Fed going into tonights FOMC meeting as Wall Street stumbled. Gold rose but other undollars are under pressure, with Pound Sterling getting Johnsoned once again while the Aussie dollar is hell bent on reaching new yearly lows.

Looking at the action on Asian markets yesterday, where the Shanghai Composite came back stronger, closing nearly 0.4% higher to 2952 points while the Hang Seng Index staved off another new daily low, climbing just 0.2% to finish at 28146 points. This puts it somewhere near but not above the recent support level as this market teeters for another breakdown. I’m still watching ATR support at the 27700 level for signs of a capitulation:

Japanese share markets were much more robust, taking in the BOJ meeting with Governor Kuroda soothing concerns on inflation with the Nikkei 225 closing 0.4% higher to 21709 points despite a slightly stronger Yen. Futures are no longer supportive however as Yen strengthened overnight in the risk off move, so instead of watching the previous set of daily highs, the low moving average and possibly the 21000 point level may come under threat here quickly:

The ASX200 was loving the mood with no bears left to stand in the way, putting on a record high to close 0.3% higher at 6845 points. SPI futures are down 30 points or 0.4% and this maybe the start of my KC Signal – too much, too fast. Watch the the low moving average here and an inversion of extremely overbought momentum:

European stocks were all over the place on Brexit concerns and the much stronger than expected German CPI with the FTSE falling back after its recent surge, while the German DAX collaposed over 2% to finish just above 12000 points. The daily chart is no longer confused, with momentum clearly negative and key support levels taken out, this market is ready to go into correction mode particularly if the Fed becomes less dovish:

Wall Street also continued its small retracement – where in bizzaro world, a good consumer confidence print means lower stock values – with the S&P and NASDAQ both off by 0.25% with the former closing at 3013 points. Resistance at the former highs at the 3022 area conntinues to prove to be too strong here with the four hourly chart showing a break below the tentative bearish rising wedge pattern and down to key psychological support at 3000 points. Medium term support remains very firm at the 2960 point level (horizontal black line) but this is looking teetering:

Currency markets were somewhat quiet given the slew of economic reports with Pound Sterling oscillating around its recent bottoming while the Euro lifted slightly on the German CPI print, melting higher to the 1.1150 level again. 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 was ready to breakout on its own but last night saw the 109 handle rejected and a fall back to the mid 108’s as the consumer confidence print took some heat out of the USD. Yesterdays BOJ meeting did not provide a catalyst for a higher move to the early July highs at the 108.90 level as a wider risk-off mood sees Yen as a safe haven buy.  I’m positioning for a break below the low moving average level around 108.40 or so:

The Australian dollar went from a slowly decelerating pattern into a wider selloff, breaking into the 68 handle here well before the FOMC meeting. This is ominous indeed as I’ve been warning about the potential to fall even further as this now matches the four yearly low:

Oil is no longer tracking sideways with a nice breakout overnight saw the WTI contract rally to finish above the $58USD per barrel level, after recently threatening to breakout below the support low. Intrasession volatility was key here to watch and saw the high moving average on the daily chart broken for a breakout but now requires a follow through to threaten the former highs above $60:

Finally to gold, which lifted slightly again to get back above the $USD1430 per ounce level, making another daily 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 tonight:

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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