Macro Morning

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MB Radio: Irresponsibility becomes the new black

By Chris Becker 

The trading week finished on an upbeat note with sentiment still in the clouds about a pending US-China trade deal as the USD broke to a new record high against the major currencies, alongside US stocks. Gold fell to a new monthly low while oil prices pared back recent gains as Bitcoin also slipped from its recent false breakout.

Looking at the action on Asian markets Friday, where the the Shanghai Composite gapped higher on the open but struggled to hold on to those gains in the post lunch session, sharply falling to close 0.5% lower at 2964 points and unable to close the week out above the key 3000 point resistance level once more.  Meanwhile the Hang Seng Index also fell after getting ahead of itself, closing off by 0.7% to 27651 points as the daily chart clearly shows an overextended rally after recently clearing the 27000 point level. While the trend is very strong here, it may not be sustainable as momentum builds to even more overbought levels:

Japanese share markets were the only ones to really advance, with the Nikkei 225 up only 0.2% or so to 23916 points. This is yet another market that is quite overbought but futures are indicating a small pullback on the Monday morning open as Yen buyers stepped in late on Friday night, sending mixed messages to the risk complex here in Asia. Watch how trailing ATR support ratchets up higher and faster, and is now past the previous resistance point at 22500 points, a good uncle point for sure:

The ASX200 was unable to translate its recent gains into a sustainable breakout, falling a handful of points at the close and finishing the week just above 6700 points. SPI futures are up nearly 30 points however, so this should translate into a better recovery to start this week, but can price get back above the previous September highs that is proving strong resistance so far?

European markets were less upbeat, despite a bit of help from much weaker domestic currencies and finished with minor losses, although post close futures saw some pullback as Wall Street gained. The German DAX was down nearly 0.5% to 13228 points, but still finishing the week well above multi-month resistance at 12700 points. After being considerably overbought this session was warranted and more sideways action is appropriate before another leg higher:

Wall Street continued to make record highs with more no-bad news on tariffs from China and a rise in consumer sentiment helping, with the Dow putting in a scratch session while tech stocks led the charge again. The S&P500 closed some 0.3% higher to 3093 points, making another new record high but not how the pattern on the daily chart has morphed from a basic trend channel to the ominous bearish rising wedge as momentum continues to float into very overbought status. Any bad news on China could see this unravel, but the trend remains intact for the followers:

Currency markets continue to see bigger strength in USD with Euro finishing to a new weekly low after breaking down mid week, dragging Pound Sterling with it. The union currency almost finished below the 1.10 handle on Saturday morning, making a break for the 1.09 level at the September low, with momentum not yet hugely oversold and ready to send price much lower if the trade deal news goes through:

The risk proxy of choice, the USDJPY pair had previously surged on the positive risk mood, but was unable to take out the mid week high although still finished above the 109 handle. The four hourly and daily chart is still very positive despite a small blip in momentum, so I’m watching the 109 handle to hold to start the week, with some possible oscillation to shakeout:

The Australian dollar broke down on Friday, falling straight through near weekly support at the mid 68 level and setting up for a shaky start to the week here locally. The series of lower highs and the break of weekly support is behind this move, although momentum is considerably overbought so a short term swing long trade is possible before another medium term leg down:

Oil prices are still building further from here despite the previous inventory report and only a small nominal advance as the WTI contract consolidates above the $57USD per barrel level. Note how the daily chart shows higher session lows and lots of intrasession buying support as it approaches trailing ATR resistance, indicative of a breakout soon, but I still note that significant resistance at the $60 level may limit upside here:

Finally to gold, which after being continually pushed back down to daily ATR support earlier in the week, cracked on Thursday and followed through on Friday to close well below at $1458USD per ounce. By taking out daily/weekly support taken out the selloff could go as low as $1340, which corresponds to multi year support, but first needs to clear the $1420 zone of support from earlier in the year:

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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