Macro Morning

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Macro Afternoon

By Chris Becker 

A reduction in US tariffs and timeline was behind a rebound on Wall Street and the USD overnight with concerns over the growing trade war with China overshadowing a stronger than expected CPI print for July. The German ZEW Survey slumped but was ignored by European equities as the Euro fell on USD strength following the CPI print, with commodity prices leaping across the board as oil gained over 4% and gold and base metals rose.

Looking at the action on Asian markets yesterday, where the Shanghai Composite has given up after its initial good start to the week, retracing half of those gains to fall 0.6% to 2796 points while the Hang Seng Index is no longer hanging on but selling in earnest as domestic risks outweigh all else, down over 2% to 25281 points. This puts it below the January lows and matches the previous daily lows from last week, with the daily chart spelling a lot of trouble ahead unless momentum can pick up soon:

Japanese share markets reopened from their holiday with the Nikkei 225 playing catchup to close 1.1% lower at 20455 points. Futures however are hugely supportive as the bottom fell out of Yen last night, so we should see a very firm rebound back towards the 21000 point resistance level, but probably not through there, setting up for a nice swing trade only:

The ASX200 was the best in the region, relatively speaking, falling only 0.3% to close at 6568 points, still unable to breach the 6600 barrier.  SPI futures are up at least 40 points or so on the back of Wall Street but this still looks like a typical dead bounce with the potential to reverse sharply if risk sentiment turns sour again:

European stocks initially started poorly, not helped by a terrible ZEW survey but the lower Euro post the CPI print really helped move things along with the German DAX closed some 0.6% higher to 11750 points. This keeps it shy of the 12000 point resistance level but is a new daily high and almost clears the series of lows on the daily chart. A break above the high moving average and 12000 points proper is required before more longs pile in:

Wall Street was embiggened by a strong CPI print this time, turning this failed  comeback around with 1.5% to 2% rises across the three main bourses. The S&P500 finished 1.5% higher at 2926 points, matching but not exceeding Friday nights stalled price. Perhaps there’s still some life in this dead cat, but resistance at 2960 needs to be cleared next:

Currency markets were all about a stronger USD overnight as the stronger CPI print saw the majors retrace, particularly Yen but also Euro which fell to a new weekly low as it remains below the 1.12 handle. As momentum was flat lining here it still bears (sic) watching the former session lows at 1.1170 for signs of a breakdown to ATR support:

The USDJPY pair reversed the hardest, with a 100 pip plus ride back up to but through the 107 handle on the CPI print that should give a significant boost to Japanese share markets today. I’m watching for a confirmed break above the long held ATR resistance level at 107.10 or so to turn this into a new trend before going all in:

The Australian dollar had a surprise bounce against USD, helped by much firmer commodity prices instead, with a spike up to the 68 handle but was unable to exceed any of the Friday session highs. I’m still 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 making a stronger than expected comeback despite USD strength with the WTI contract surging 4% higher to finish just below the $57USD per barrel level overnight. This takes it back above the high moving average on the daily chart as momentum inverts nicely from its oversold reading, but this is  just a swing trade for now:

Finally to gold, which had a volatile trading session to basically finish where it started at just above the $1500USD per ounce level overnight, absorbing the stronger than expected CPI print as bulls outweigh the bears fear of a pause in Fed rate cuts. I’m still concerned that momentum remains  extremely overbought and a slight inversion back to the low moving average would be helpful here before going 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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