Macro Morning

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Australian dollar thumped to eleven year low

By Chris Becker 

Friday night saw another new record high for US markets, all based on the expectation that the US/China trade talks will still present a positive outcome for both. USD fell against most of the majors while the risk proxy USDJPY pair jumped, so combined this should result in a very good start to the week here for risk assets in Asia.

Looking at the action on Asian markets on Friday  where Chinese stocks remained under pressure as the Shanghai Composite played catchup to fall over 0.6% to close the week out below 2900 points. Meanwhile the Hang Seng Index finally stopped falling, gapping higher at the open but holding on with a minor 0.1% gain into the close to 26326 points. Price remains well below previous trailing ATR support and the previous resistance zone so a continued retracement down to 25000 points is still on the cards here if a new session low is made today:

Japanese share markets flipped from selloff mode to all hands on the buy button with the Nikkei 225 closing 0.7% higher to 23303  points. This was due to mainly to a cease in Yen buying throughout the session and given the good fortunes on Friday night on Wall Street, futures are expecting a surge on the open this morning. So far this trend remains intact as trailing ATR support has been respected in this dip:

The ASX200 rebounded again, closing only a few points shy of the 6800 level, up nearly 0.9% despite a slightly higher Aussie dollar. SPI futures are up signficantly though on the Wall Street bounce so it looks like price will finally break free of the staunch resistance here since mid September and crack through 6800 points proper:

European markets were relatively upbeat on Friday night, advancing further on futures in the post close as Wall Street rallied. The daily chart of the German DAX doesn’t look optimistic despite a half percent lift on to 13241 points, still maintaining itself clear and well above multi-month resistance at 12700 points as this consolidation phase looks like ending soon. The daily trend has been respected with the low moving average untouched since the breakout and this should continue from here:

Wall Street made new record highs with the daily chart of the S&P500 showing a complete rejection of the bearish rising wedge pattern as it advanced more than 0.8% to 3120 points. Can’t stop the BTFD crowd, even when there’s no dip! I’m still cautious here given the overbought status and the lack of substance behind the move, but price always wins first when trading, not your opinion:

On currency markets, the USD was pulled back by all the majors, including Pound Sterling after it had stalled all week but the biggest mover was oversold Euro which shot out of the gates to finish at the mid 1.10 level. The four hourly chart was showing a bullish falling wedge here that came to fruition with a nice swing trade on Friday night but may already be overextended according to momentum, but if price can hold here above previous trailing ATR resistance we could see a new rally this week:

The USDJPY pair also bounced back, leading itself up to but not through the 109 handle and still showing signs of a fake breakout. The weekend gap is something to be wary of and if risk takes off there is the potential for an open above the 109 level but the weight of the previous week selloff is still telling here:

The Australian dollar also participated in the overall USD weakness with a swing higher back through the 68 handle after finding a bottom at the 67.70 level that was looking extremely oversold. Whether this has legs is another thing with price still unable to break trailing ATR resistance at the 68.30 level so that’s where to watch early on in the week:

Oil prices are very slowly building higher with the WTI contract lifting up to finish just below the $58USD per barrel level as it finally takes out the previous ATR resistance level. The daily chart is building a series of higher session lows and lots of intrasession buying support to give this trend legs, but probably only up to $60 or so:

Finally to gold, which after breaking down previously made a minor comeback on Friday before it was thwarted by late selling to finish at the $1467USD per ounce level. Price needs to swiftly move back above the $1480 former support, now resistance level or this could prove a bull trap and send gold into a second phase selloff:

 

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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