Macro Morning

By Chris Becker 

Friday night saw US stocks tread water despite a better than expected retail sales print with US Treasury yields instead spiking higher, dragged along by German bunds despite the ECB’s Thursday announcement of easing and more QE. In currency land, Pound Sterling continued its rise while Euro made it a new monthly high, reinforcing the perverse outcome of the ECB’s interest rate agenda.

We’re all expecting a big jump in oil prices and possibly safe havens this morning as the Yemeni revenge attack on the Saudi’s processing plant over the weekend will have a big impact.

Looking at the action on Asian markets on Friday, where the Shanghai Composite was closed for a holiday, as it firms above the 3000 point barrier. Meanwhile the Hang Seng Index closed 0.5% higher to 27226 points, making good on its breakout above former overhead resistance at 27000 points. Price had tentatively broken through above trailing ATR resistance at the 27000 point level through the week and is now accelerating as momentum moves into the positive zone so we should have more upside to start this week – if the protests don’t go sour!

Japanese share markets continue to fly higher and higher with the Nikkei 225 surging yet another 1%  to 21988 points making another weekly high – but its too much too fast! A cursory look at the daily chart shows price action is a classic bubble like blowout which must be resolved in a pullback sometime soon – very brave to go long or add to longs from here particularly if Yen is bought on the safe haven bid:

The ASX200 slowly made some headway, making another 0.2% in gains to finish the week well above 6600 points.  SPI futures however are indicating a staid start to the week given the mixed Wall Street lead with a 7-10 point drop on the open. While price action on the daily chart indicates a firm trend is underway, there is some hesitation and signs of a rollover here just above ATR resistance:

European stocks were positive despite the increase in value in both Euro and Pound Sterling, with the German DAX putting in another solid session to finish 0.4% higher to 12468 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::

Wall Street was unable to turn positive economic news – both retail sales and consumer confidence – into anything tangible with only the Dow advancing slightly as the NASDAQ retreated 0.2% while the S&P500 closed a handful of points lower to finish at 3007. Intrasession prices again touched the former early July highs slightly above and that’s still the target for this reflation rally, but can it be sustained:

Currency markets are still Euro-centric post the ECB meeting with Pound Sterling surging to a new monthly high while Euro came back ever so slightly after a surge up through the 1.11 handle. Friday night’s close takes it just above the previous weekly close so its a big bullish push, but I’m positioning for a possible rollover here below the low moving average at the 1.1050 level:

The USDJPY pair remained a little stuck at the 108 handle as expected with price continuing to taper into that resistance zone.  Momentum is considerably oversold with a slight inversion occuring on the CCI indicator so while a pullback is not yet evident, there is some probability of a drop in the pair as Yen buyers step in:

The Australian dollar remained somewhat calm amidst all the Euro-vol with almost no change again on Friday as the recent 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. This is likely to change on the open today as the Saudi processing attack will see a big surge in oil prices – 10% or more, so watch out for the gap higher to $60 or so!

Finally to gold, which was unable to find much support on Friday night given the solid economic prints and the likelihood of the Fed not cutting again soon, closing down to a new daily low and  right on trailing ATR support just below the $1500USD level. 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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