Macro Morning

By Chris Becker 

The positive mood is quickening with overnight markets reacting to the upside on US-China trade talks with US Treasury yields hitting a one month high. The firing of NSA John Bolton saw oil price drop, plus talk of easing of sanctions on Iran, while US PPI inflation figures were upbeat, lifting USD against the majors. Tonight’s ECB meeting will be very closely watched!

Looking at the action on Asian markets yesterday, where the Shanghai Composite was the exception to the bullish mood, falling 0.4% to close just over 3000 points while  the Hang Seng Index had a strong rally to close 1.8% higher at 27159 points, casting off any ideas of pausing from its well overbought status. Price has tentatively broken through above trailing ATR resistance at the 27000 point level with momentum now clearly positive – can it be sustained?

Japanese share markets continue to fly higher, helped by a weaker Yen the Nikkei 225 surging 1%  higher  to 21597 points making yet another new daily high. This remains a very solid breakout following weeks of consolidation with a bottoming pattern, with a return to the previous double top high near 21800 on the cards as risk stays fully on:

The ASX200 tried to make up for lost time, limping forward by only 0.4% and taking back some of the previous losses as bank stocks drag everything along.  SPI futures are up around 30 points this morning as the lead from Wall Street was quite clear.  Price action on the daily chart indicates a firm trend is underway, with ATR resistance overhead to be cleared today before getting back to the 6800 point highs:

European stocks were generally positive as Euro and Pound Sterling fell back, with the German DAX putting in another solid session to finish up 0.7% to 12359 points. The DAX daily chart has gone from very positive to nearly bubble like, with price action now well above its own high moving average after substantially clearing ATR resistance as support at 12000 points firms. I still question if this is sustainable going into tonights ECB meeting which could disappoint:

Wall Street finally broke out of its three day funk with green across all the screens as the S&P500 closed 0.7% higher to finally finish above 3000 points for the first time since mid-July. This is a key psychologically level to break and sets up for a return to the former early July highs slightly above:

Currencies have moved out of there holding pattern even before the ECB meeting with geopolitical risks weighing on the majors as USD returns to strength. The Euro fell straight back to the 1.10 handle after dancing with resistance at the 1.1050 level, with trailing ATR support proper on the four hourly chart taken out. Price action suggests this breakout is finished with a swing next, but hard to read going into tonights meeting – maybe the bearish double or triple top pattern is working still:

The USDJPY pair continued higher as the risk on proxy, finishing just shy of the 108 handle again with price tapering into that resistance zone.  Although momentum is considerably oversold a pullback is not yet evident as Yen sellers buy up domestic Japanese stocks instead – watch support at the low moving average now at ca. 107.60 to hold here but also for signs of an inversion:

The Australian dollar remains in a calm pose with almost no volatility again overnight, still below the 69 handle.  I said previously that this could run out of steam very quickly if risk goes off, but with stocks rising and commodities falling its not catching a break either way. I’m watching for an inversion or consolidation next as momentum was way overbought but now receding to the zero signal:

Oil prices were flummoxed by the potential easing of Iranian sanctions with both Brent and WTI falling nearly 3%, the latter settling at just below the $56USD per barrel level. The little breakout seems over before it starts and could retrace back to the recent daily lows here at $52 or so:

Finally to gold, which is finding a modicum of support right on trailing ATR support a smidgen below the $1500USD level. Could be some hope here for another leg higher, but I’m not convinced and we could see more downside action to the previous resistance level at $1425 as part of a bull market dip:

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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