Macro Morning

By Chris Becker 

The end of the northern hemisphere summer break usually spells doom and gloom on risk markets, and that’s where the mood takes us at the moment with Friday nights US unemployment print unable to shake confidence back into the complex. More threats and cajoling on both sides of the US/China trade war – plus some minor skirmishes between South Korea and Japan, and of course, the usual Brexit melodrama – are threatening to topple the whole thing over. The USD is being bid left right and center while commodities are sold off, with copper putting in a disastrous week as a bellwether.

Looking at the action on Asian markets Friday, where the Shanghai Composite fell nearly 2% before mildly recovering to finish only 1.4% lower at 2867 points while the Hang Seng Index had a huge gap down to close 2.4% lower at 26918 points. This puts it almost back to the May lows in one foul swoop, taking out all of the recent advances. Whether this is due to internal protest pressures and a looming big boot stamped “Made in China” coming to restore Communist happiness, or reaction to the rest of Asia selling off is unsure. But if those May lows are taken out its off to the September 2018 lows at 23000:

Japanese share markets did even worse, with the Nikkei 225 off by nearly 3% at one stage before recovering to close only 2.1% lower at 21087 points. This was due to the plunge in the positively correlated USDJPY pair, as safe haven buying in Yen meant a big switch out of equities. The daily chart shows how the 21000 point support level is teetering just like the Hang Seng, ready to take out all of that quarter’s gains. Momentum is oversold, but not hugely, and futures are pointing to further downside todaY:

The ASX200 escaped most of the carnage, falling only 0.3% to close at 6768 points mainly due to the much lower Australian dollar throughout the session. SPI futures are flat and all things considering, the market is still quite resilient here to all the external pressure – even vastly lower commodity prices. This means reality hasn’t set in yet because the lower Aussie dollar can only support it so far. I’m still targeting as low as 6600 points in the short term and watching the low moving average here with an inversion imminent due to extremely overbought momentum:

European stocks had a terrible session with 2-3% losses across the board, with lower domestic currencies not helping a jot. The German DAX was almost the worst, finishing down 3.1% at 11872 points, crossing back below the 12000 point level that had been struggling to hold all week. The daily chart has gone from very bearish to extremely oversold, and normally I would suggest a bounceback here, but sentiment has swung totally the other way so we could see a retest of the May lows at 11600:

Wall Street is the harbinger of bad news and with Friday’s falls solidifying this correction phase, it too could take the whole May advance down as well. The S&P500 was down well over 1% before coming back slightly to only close 0.7% lower at 2932 points, making key psychological support at 3000 points a distant memory. Pointedly, its taken out medium term support at the 2960 point level (horizontal black line) with ATR support level gone as well, setting up correction mode:

Currency markets were again all over the place, with USD weakness and strength still changing across undollars with the NFP print barely startling most pairs except Yen.  Pound Sterling was relatively quiet while the Euro had another quick look back up through the 1.11 handle but ran out of puff. I’m still watching for an inversion here however back to the previous lows and for the 1.10 level to come under pressure:

The USDJPY pair had another solid selloff on USD weakness and the safe haven bid with a move down to the mid 106’s following the NFP print. This puts the pair well below the July lows and indeed a new yearly low with the longer term chart suggesting a bottom nearer the 104 handle. This morning’s gap could be quiet sharp down:

Trading the Australian dollar an easy one even with the US NFP stirring things up as it does with the PAcific Peso breaking into the 68 handle on Friday night. While momentum remains well oversold there is still the chance of a small fightback as this trade seems way too crowded. I’m watching the high moving average as signs of a possible swing higher:

Oil and other commodities remain very weak as the trade war continues with the WTI contract finishing very slightly higher at just above the $55USD per barrel level, after previously making new weekly and monthly lows. Momentum is still weak here with the possibility of a greater selloff down to $50 still imminent if no new daily highs are made soon:

Finally to gold, which after its big rally mid week was unable to make good to match the previous daily high, but still finished the week at a very respsectable $USD1439 per ounce. The rally was a clear bullish engulfing candle move, reversing the previous, albeit weak selloff on the recent Fed cut. It’s not quite the new high however but pokes above the medium term uptrend line = this is getting interesting!

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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