Macro Morning

By Chris Becker 

The dead cat bounce is now over as the orange mirkin couldn’t put any life back in, swamping the Chinese with tariffs and a tirade on Friday night, sending Wall Street into a frenzy. It will be a bath of blood on Asian markets this morning as Chinese authorities reacted in kind, setting off a new conflagration in this trade war. The USD was sent down sharply, as Yen and gold rose on safe havens, while the Aussie dollar was put under pressure as commodity prices dropped.

Looking at the action on Asian markets on Friday, where Chinese stocks lead the charge with the Shanghai Composite up nearly 0.5% to 2897 while the Hang Seng Index did the same, up to 26179 points. Price had been threatening the high moving average on the daily chart, but buyers are not yet confident enough to push it higher, so the bourse ended the week where it started. I’m watching the low moving average to come under enormous pressure for an inversion back to the weekly lows below 25000:

Japanese share markets put in mild gains with the Nikkei 225 closing 0.4% higher to 20710 points, held back by a still firm Yen. Futures are pointing to a big inversion this morning however on the risk off mood with the recent terminal lows to come under threat at the 20000 point level. Classic bearish chart pattern here:

The ASX200 had a mild session to finish the week, closing just 0.3% higher to remain over 6500 points, helped a little by a weaker Australian dollar. SPI futures however are indicating a big selloff – probably at least 2% on the open this morning –  given the blowout from Wall Street on Friday night.  The daily chart  remains weak with strong resistance at 6530 still a long way away, with the high moving average still not under any threat of a potential breakout:

European stocks were putting in mild swings down before the Trump tirade, with the German DAX finishing only 1.1% lower at 11611 points, still holding on above recent support at the 11600 point level but futures tore that open for at least another 1% drop when it plays catchup tonight. I’ve always been wary of these false moves as the market seems to have been anticipating Trump losing it against China and never bid it high enough to warrant re-entry:

And that’s been plain to see on Wall Street which had a dreadful Friday night session, with all three bourses finishing 2-3% lower on the re-igniting of the trade war. The S&P500 finished 2.6% off at 2847 points with the daily chart showing a wipe out of the nascent bullish inverse head and shoulder pattern as resistance at the former highs and previous daily ATR resistance at the 2940 level was rejected and then some. I’m watching the terminal lows here at 2825 or for signs of a follow through and then we’re swiftly down to 2750:

Currency markets were the biggest movers on Friday night as all support dropped out of the USD, except on commodity currencies, with Pound Sterling lifting to a two week high while the Euro finally found some life – and then some – to breakout out to a new high well above the 1.11 handle. My “this is not yet a bottom” theory is in ashes as markets swing to a USD weakness meme which will be followed through until Trump eventually concedes against the Chinese, again:

The USDJPY pair was a huge mover, selling off as Yen was bought left, right and centre, sending the pair through the 106 handle, and then 105 to gap down in early trade this morning. This wipes out all of the recent recover and sets up for further falls to the 2018 lows at 104.60:

The Australian dollar had quite a bit of intrasession volatility but eventually fell through the mid 67’s and made a new weekly low. As I’ve been saying for awhile, I contended there’s a lot of weakness here so I’m positioning for a return to former ATR support at the 67.40 level where I expect another breakdown and back to the previous lows below the 67 handle:

Oil prices fell over on Friday night in the wake of the trade war with the WTI contract closing sharply down to be below the $54USD per barrel level. This takes out the low moving average on the daily chart and suggests a return to the previous lows – solid black horizontal line – just above $50…Unless the Iranians start to put the pressure on Trump:

Finally to gold, which after a nice consolidation phase, sharply moved higher for a new weekly high at $1526USD per ounce. Even a somewhat hawkish speech by the Fed couldn’t dampen down the gold bug spirit, and its all upside from here, but keep a tight or series of uncle points starting at just below the $1500 handle:

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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