Macro Morning

See the latest Australian dollar analysis here:

Macro Afternoon

By Chris Becker 

It was all about the Fed overnight where at their July meeting, a 25 bps “insurance cut” rattled markets instead, with US stocks losing more than 1% and sending the USD higher against everything. Treasury yields jumped across the curve while Australian interest rates fell, with the 10 year government bond now at a record low. Commodities like oil and iron ore also sold off in response. It’s going to be a sour day here in Asia.

Looking at the action on Asian markets yesterday, Chinese stocks were the worst, with the Shanghai Composite falling 0.7% to be at 2932 points while the Hang Seng Index buckled under internal pressure with another new daily low, losing 1.3% to finish at 27777 points. This puts it right on ATR daily support and ready to breakdown to a new monthly low:

Japanese share markets were also under pressure with the Nikkei 225 closing 0.8% lower to 21521 points despite a steady Yen. Futures are pointing to selling today despite a weaker Yen overnight as all risk markets are re-evaluating the Fed’s not so quite dovish position. I’m watching the 21000 point level to come under threat here quickly:

The ASX200 also retreated from its recent record high, absorbing yesterday’s CPI print with a 0.4% loss, closing at 6812 points. SPI futures are down 30 points or nearly 0.5% and this might be confirming my KC Signal – too much, too fast – with a drop down to 6600 points probable in the short term. Watch the the low moving average here and an inversion of extremely overbought momentum:

European stocks were all over the place with some positive results before the Fed cut, as German unemployment was steady and the EZ CPI print came in on expectations. The German DAX advanced some 0.3% to finish at 12190 points but has retreated on the futures to a new low. The daily chart is very bearish here, with momentum clearly negative and key support levels taken out, with correction mode the likely outcome here on a not dovish enough Fed:

Wall Street hated the pulling away of the punch bowl, with all three major bourses retracing more than 1% last night. The S&P500 was knocked back well below the key psychological support at 3000 points to finish at 2980 points. Medium term support remains very firm at the 2960 point level (horizontal black line) but this is looking teetering when you step back and look at this daily chart:

Currency markets had an even greater response to the Fed “not too light” cut, with the USD soaring against all the undollars, although Pound Sterling had a momentary spike as the Brexit Chicken game continued between Brussels and London. The Euro fell straight down to the 1.10 handle, after absorbing a steady CPI print prevously, taking it to a new two year low. Not much to say here other then pile in on new four hourly lows:

The USDJPY pair was ready to breakout on its own but last night again saw the 109 handle rejected but still supported intrasession following the Fed cut.  I’m still positioning for a possible break below the low moving average level around 108.40 or so, but looking at lower timeframes, there maybe a breakout looming still:

Trading the Australian dollar has been too damn easy even before the Fed meeting with a new yearly low overnight, breaking well down into the 68 handle here. Momentum is oversold here and potentially a small fightback could see a blip back to the ATR trailing resistance level but only as a swing play:

Oil and other commodities responded in kind to the Fed with the WTI contract retracing slightly to finish just below the $58USD per barrel level. This keeps it just above the high moving average on the daily chart but momentum looks weak here and unlikely to threaten the former highs above $60 anytime soon:

Finally to gold, which immediately sold off on the Fed cut, falling nearly $20 per ounce to the $USD1412 per ounce level, wiping out all the recent daily highs. This takes out all the momentum of the previous week’s buildup to the supposed breakout above the long term treadline and leaves the shiny metal in a precarious position here below the medium term uptrend line:

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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