Macro Morning

By Chris Becker 

A volatile night on currency markets as the ECB cut rates and restarted its QE program in the face of a continental recession and Brexit concerns. Stocks rose mildly in response however, while bond yields are weirdly higher, including Euro! Oil prices fell back again while gold was largely unchanged, but remained under $1500USD per ounce.

Looking at the action on Asian markets yesterday, where the Shanghai Composite made a comeback, closing 0.7% higher to 3031 points. Meanwhile the Hang Seng Index started well enough before a late selloff saw it close down 0.3% to just above 27000 points, as the long awaited pause in this overbought rally comes to fruition. Price had tentatively broken through above trailing ATR resistance at the 27000 point level with momentum getting into the positive soon but has the market got ahead of itself:

Japanese share markets continue to fly higher, helped again by a weaker Yen the Nikkei 225 surging another 1%  higher to 21817 points making another new daily high. Price action has changed from a very solid breakout into a bubble like blowout and must be resolved in a pullback sometime soon – very brave to go long or add to longs from here:

The ASX200 is still basically treading water, only up 0.2%% to recover its previous losses but not making much headway as the  Australian dollar weighed on local markets.  SPI futures are up another 20 points this morning as optimism creeps in again.  Price action on the daily chart indicates a firm trend is underway, with ATR resistance overhead finally cleared today as we head back to the 6800 point highs:

European stocks were generally positive despite the epic volatility in both Euro and Pound Sterling, with the German DAX putting in another solid session to finish 0.4% higher to 12410 points. The DAX daily chart is another pattern that 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. That bearish island reversal star is gleaming a little too bright and needs to be shot down:

Wall Street was able to watch the ECB volatility from afar and with no bad local news, the S&P500 closed 0.3% higher to make more gains over the 3000 points barrier, closing at 3009. Intrasession price actually touched the former early July highs slightly above and that’s the target for this reflation rally:

Currencies were starting to ramp up in volatility before the ECB meeting but went wild thereafter with a huge range in Euro overnight, quite evident even on the four hourly chart below. The end result is perversely weird – Euro was unchanged, indeed stronger than last week’s Thursday high! Price tested the previous lows and rebounded but its unclear if this pattern is bullish at all with some selling evident overhead at the 1.1080 level. Best to wait, have a pint and start again next week?

The USDJPY pair continued higher as the risk on proxy, but again is not rocketing through the 108 handle as expected 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 as this could change into a bearish rising wedge:

The Australian dollar remained somewhat calm amidst all the Euro-vol with almost no change overnight although a break above the  69 handle got no traction. There is a possibility of a rounding top here as consolidation could turn into inversion, so watch momentum readings and local support at the mid 68 level:

Oil prices fell back again, briefly touching a weekly low with WTI falling nearly 2%, settling just above the $55USD per barrel level. The false breakout is turning into a rout which could see a full retracement back to the recent daily lows here at $52 or so:

Finally to gold, which continues to find a modicum of support right on trailing ATR support around the $1500USD level with some currency volatility spilling over and causing a minor uptick overnight. While hope is building here for another leg higher, 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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