Macro Morning

By Chris Becker 

Trade war concerns are still weighing down on risk sentiment across global markets with Wall Street falling over 1% to start the trading week on a bad note, as everyone watches dead cat bounces develop on their charts. The unrest in Hong Kong plus the chance of new snap elections in Italy and the ongoing clusterf#ck that is Brexit isn’t helping either with safe haven bids across the board – Yen, gold and Treasuries as usual with the latter 10 year yield dropping back to 1.6% as markets price in even more Fed cuts.

Looking at the action on Asian markets yesterday, where the Shanghai Composite  finally found some momentum, jumping over 1.4% to 2815 points while the Hang Seng Index was just hanging on to a scratch session before selling off going into the close to be down 0.4% to 25824 points. This keeps it just above the January lows at 25000 points but even a cursory glance at the daily chart shows it remains in trouble with very poor momentum – flip the chart and you’d be super bullish:

Japanese share markets were closed for yet another holiday, which is probably good given the big bids in Yen with the USDJPY pair remaining well below the 106 handle, dragging the AUDJPY with it. Futures however are broadcasting more selling as Yen continued to firm overnight,  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 also treading water, closing a handful of points higher with no news or impetus to take on risk to start the week well, closing 0.1% higher at 6590 points, still unable to breach the 6600 barrier. That’s starting to look like the new medium term resistance level as SPI futures are down at least 50 points or so with 6500 points proper to come under threat today as risk sentiment remains poor:

European stocks gapped lower again, a firmer Euro not helping as risk sentiment remains depressed. The German DAX closed with a scratch session, doing better than most but futures are indicating further falls tonight to match the previous lows as the 12000 point area remains a very firm resistance level. The daily chart shows how price had not even approached the high moving average during this bounce, still anchored at the May lows at 11600 which are likely to be revisited very soon – if it breaks, the shorts will pile in:

Wall Street continues to fail to turn this comeback into anything but a dead cat with 1% falls across the board again as the S&P500 finished at 2883 points. With price stalling well below daily ATR resistance the four hourly chart is showing a reversion back to ATR support at the 2860 point level which will be closely watched tonight as momentum also inverts to a negative reading. Meow!

Currency markets were a little quieter overnight with Pound Sterling bouncing back slightly with Euro also coming back to its recent highs just above the 1.20 handle. I’m still watching the high moving average on the four hourly chart for signs of another breakout, but momentum is flat lining here so I’m also watching the former session lows at 1.1170 for signs of a breakdown to ATR support:

The USDJPY pair continues to slide on Yen safe haven buying, having recently broken through the temporary bottom at the 105.70 level its now threatening the 105 handle proper, despite a lack of trading from closed Japanese markets. I’m watching for another possible gap down as risk sentiment reverses, with the longer term chart still suggesting a bottom actually nearer the 104 handle:

The Australian dollar also slid down despite the rebound in some commodities, after having been unable to breach the 68 handle on Friday this rollover was inevitable, heading back down to the mid 67’s overnight. I’m watching ATR support at the 67.40 level for another breakdown and back to the previous lows below the 67 handle:

Oil and other commodities are still trying to comeback with some mild USD weakness creeping with the WTI contract lifting again to finish just below the $55USD per barrel level overnight. This takes it back to the pre-breakdown level from the start of the month but momentum remains hugely oversold with the possibility of a selloff down to $50 still a chance:

Finally to gold, which is again wanting to breakfree, heading well above the $1500USD per ounce level overnight after another pause on Friday just below that key level. There’s no short positions left here it seems, and although momentum is extremely overbought price remains poised for more upside:

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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