Macro Morning

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Only the property crash can sink Australian dollar now

By Chris Becker 

Stocks are riding the waves of transPacific press releases and editorials as positive news surrounding the US/China trade deal is sending USD higher and lifting all risk assets. The EuroStoxx 60 hit a six year high as Brexit concerns have evaporated, while gold has broken through multiple support levels losing more than $20USD per ounce and Treasury yields are spiking on risk rotation out of bonds.

Looking at the action on Asian markets yesterday, where the Shanghai Composite eked out a minor scratch session, closing a couple points higher but remaining below the key 3000 point resistance level.  Meanwhile the Hang Seng Index slipped late in the session before rallying at the close to finish 0.5% higher at 27847 points where its looking very toppy here on the daily chart after only recently clearing the 27000 point level. The trend is very strong here, but maybe not sustainable as momentum builds to even more overbought levels:

Japanese share markets on the other hand tread water as the stronger Yen and lack of optimism weighed on risk taking with the Nikkei 225 closing only 0.1% higher at 23330 points. Another market that is quite overbought but futures are indicating a big move higher on the open in line with other risk assets as trailing ATR support ratchets up higher and faster:

The ASX200 was the darling in the region, lifting exactly 1% on the back of a reversal in fortune for bank stocks, closing at 6726 points and helped by a lower Aussie dollar. SPI futures are looking very bright this morning and ready to take out the September highs, with the daily chart showing price potentially getting back to that level on the open:

European markets were again in the green but this time across the board with the reflation rally increasing in momentum across the continent, brushing aside all concerns about Brexit. The German DAX was again the best, up 0.8% to 13289 points, now leaving multi-month resistance at 12700 points way behind. This is getting way overbought so I’m watching short term support at the high moving average itself which hasn’t been touched for over a week:

Wall Street is no longer stumbling around as the tariff rollback is lifting all boats, the NASDAQ up nearly 0.8% while the S&P500 is currently up nearly 0.5% to 3091 points, making another new record high. The daily chart has morphed the recent blowoff pattern into a solid trend channel but momentum is almost off the charts so this is getting way ahead of itself. Read – cheap insurance:

Currency markets are moving from strength to strength in USD with Euro breaking well below the previous session lows at last week’s support at the 1.1060 level and heading straight for the 1.10 handle. This puts the next target down at the 1.09 level at the September low, with momentum not yet oversold and ready to send price much lower if the trade deal news goes through:

Opposite of course, the USDJPY pair has surged on the positive risk mood, taking out the mid week high and last week’s high to advance well past the 109 handle. This was a great reflation trade but is now getting overblown on the lower timeframe charts and ripe for a swing play lower, so watch the previous high at the 109.20 level for signs of a breakdown:

The Australian dollar continues to hang on after recently swinging through the 69 candle as it oscillates as a risk proxy against stocks and commodity fluctuations.  Momentum has switched to the negative side as the divergence in medium term readings is indicating an inversion, so watch daily/weekly support at the 68.75 level as USD strength continues:

Oil prices are building further from here despite the previous inventory report as the WTI contract lifts further above the $57USD per barrel level and looks set to make a new daily high. The daily chart shows significant resistance at the $60 level which is starting to come under stress here:

Finally to gold, which after being continually pushed back down to daily ATR support as a strong USD weighed, has finally broken through and fallen at least $20 to currently be at $1463USD per ounce going into the late NY session. With daily/weekly support taken out gold could selloff to as low as $1340:

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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