Macro Morning

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Fed Death Star blows Australian dollar sky high

By Chris Becker 

The trading week is having a mixed start as concerns from the Asian trading session yesterday transferred to Wall Street, particularly the lack of progress on a US/China trade deal but also the escalating tensions in Hong Kong. While stocks are trading in the US, debt markets are closed for Veteran’s Day as commodity markets come off the boil, although gold is now down to a three month low.

Looking at the action on Asian markets yesterday where Chinese stocks fell the hardest with the Shanghai Composite down nearly 2% to be at 2907 points while the Hang Seng Index is doing even worse, down by 2.6% to 26926 points and wiping out all of the previous week’s breakout rally. This could get ominous as price retraces and stays below the previously clear resistance level at 27000 points, but futures are pointing to a possible fill above that level tomorrow as ATR support remains intact:

Japanese share markets continued to tread water with the Nikkei 225 putting in a small scratch session by falling 0.2% or so to 23331 points. This was due to steady Yen buying although a mild selloff this morning might help persuade nerves here at this market remains quite overbought. Watch trailing ATR support to be respected on any dip here to the low moving average:

The ASX200 has finally pushed higher and was the best in the region, lifting some 0.7% to 6772 points, matching the previous highs and poised to break higher – or is this a bull trap as I asked yesterday. SPI futures are up around 10 points going into the Wall Street close, so this breakout to start the week should hold here but for how long:

European markets were less upbeat, given the UK GDP print surprised on the downside but also on overall trade tensions. The German DAX is down nearly 0.3% to 13198 points, but still holding above multi-month resistance at 12700 points. After being considerably overbought more retracement is warranted as the daily chart remains in fine condition for an extended rally:

Wall Street has so far failed to make more record highs with the Dow again putting in a scratch session while tech stocks pulled back the industrials. The S&P500 is down some 0.3% to 3083 points, as the pattern on the four hourly chart has skipped pas the basic trend channel and into a consolidation phase.  Any bad news on China could see this unravel, but the overall trend remains intact for the followers:

The 3Q GDP print in the UK came in lower than expected, particularly industrial production, which sent Pound Sterling momentarily higher, pulling Euro along with it, but only just.  The union currency remains only slightly above the 1.10 handle after finishing below on Friday night, and is still poised to make a break for the 1.09 level at the September low, with momentum not yet hugely oversold and ready to send price much lower:

The risk proxy of choice, the USDJPY pair gapped down as expected yesterday morning but has come back slightly in the NY session to be just above the 109 handle. The four hourly and daily chart still remain positive despite the small retracement and blip in momentum which is still positive. I’m watching the 109 handle to hold with more oscillation to shakeout and attempt another high:

After breaking down on Friday, the Australian dollar remained well below weekly support overnight, hovering at the mid 68 level and looking shaky to start the trading week. The series of lower highs and the break of weekly support is behind this move, and therefore requires a new test and no new lows before calling this selloff finished:

Oil prices are trying to build further but are being hindered by macro news like Iran’s “new” oil find and OPECs dithering, with the WTI contract still consolidating around the $57USD per barrel level. The daily chart is still showing 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 is set to make another new daily low, currently at $1454USD per ounce and looking very weak and very oversold. 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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