Macro Morning

By Chris Becker 

Friday night saw the return of the short sellers and the end of what looked like a sustainable bounceback in equity markets. Wall Street closed sharply lower as the prospect of more fracas from the US-China trade war emerged, as the PBOC continues to wipe out the Yuan while Trump targets the Fed to cut rates ASAP. US Treasury yields rose slightly while commodity markets were mixed with base metals falling while oil prices came back somewhat as the USD remained mixed against the majors.

Looking at the action on Asian markets on Friday, where the Shanghai Composite was unable to gain any momentum, falling 0.7% to finish below the 2800 point barrier at 2777. The Hang Seng Index was also off the same magnitude to 25939 points as risk focuses on the domestic problems instead of any external change in risk sentiment. This keeps it above the January lows at 25000 points but it remains in trouble with very poor momentum:

Japanese share markets did the best in the region with the Nikkei 225 closing 0.4% higher to 20684 points, despite a firmer Yen that has pulled back the USDJPY pair below the 106 handle. Futures however are broadcasting more selling to start the week as Yen firmed significantly on Friday night,  with the daily chart showing a fall back to the 20000 point support level likely as price remains nowhere near the high moving average:

The ASX200 closed the week out with a mild session, up only 0.25% to 6584 points, unable to breach the 6600 point barrier. SPI futures are down 20 points or so to start the week so a return above that level is unlikely as momentum and price action shows this bounce looks over:

European stocks gapped lower and stayed there for the session, despite the stable Euro and a much lower Pound Sterling not helping at all, it was all about risk sentiment with no confidence prevailing. The German DAX closed nearly 1.3% lower to 11693 points, taking back  most of its previous gains and unable to get back above the 12000 point level. The daily chart shows how price has not even approached the high moving average during this bounce, still anchored at the May lows at 11600 which are likely to be revisited this week:

Wall Street failed its own nascent comeback that everyone had hitched a ride to with the NASDAQ falling 1% while the S&P500 slipped 0.7% to finish at 2915 points. Note how the daily price stalled at the ATR resistance and high moving average level with momentum remaining in the negative zone. As I said last week the level to watch is still former support, now resistance at 2950 which must be breached soon to get rid of the dead cat bounce trope:

Currency markets are far from stabilising however, with a depressed Pound Sterling breaking down on Friday night to close at a new yearly low just above the 1.20 handle while the Euro was essentially unchanged to finish just above the 1.12 handle. I’m still watching the high moving average on the four hourly chart for signs of another breakout, but it seems a rounding bearish top pattern is forming instead as momentum wanes so I’m watching the former session lows at 1.1170 for signs of a breakdown:

The USDJPY pair also broke with the temporary bottom at the 105.70 level being exactly that as the 105 handle proper came under pressure on Friday night. It’s likely to be a gap down this morning on the open as risk sentiment reverses, with the longer term chart still suggesting a bottom actually nearer the 104 handle:

The Australian dollar was unable to breach the 68 handle on Friday with a rollover inevitable as this swing higher turns over. I’m watchign the former ATR resistance level here to become a current resistance area instead with a new leg down to the low 66s:

Oil and other commodities are trying to comeback after a spate of USD strength inverts with the WTI contract getting out of the doldrums with a slight rise to finish just above the $54USD per barrel level. This is better than nothing as momentum remains hugely oversold with the possibility of a selloff down to $50 still a chance:

Finally to gold, which after soaring to new heights, taking out the $1500USD per ounce level had another pause on Friday to finish the week just below that key level. After getting extremely overbought its likely that a small inversion back to the low moving average on profit taking will occur before the next leg up :

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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