Macro Morning

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Australian dollar swoons as China takes ill

By Chris Becker 

Overnight markets were rocked again as the possibility of the US/China trade talks extending well into 2020 firmed, as domestic concerns outweighed the bigger picture, stumbling on tariffs again. US stocks are down nearly 1% going into the close while the USD has firmed against most of the majors.

Looking at the action on Asian markets yesterday, where Chinese stocks reversed their recent bounceback, the Shanghai Composite slumping nearly 0.8% lower to just above 2900 points. Meanwhile the Hang Seng Index stumbled alongside, falling 0.8% to close below 27000 points. Price is seemingly anchored at previous trailing ATR support and the resistance zone at 27000 points so watch for a break below that level and the low moving average on the open todaY:

Japanese share markets were unable to make headway due to a stronger Yen throughout the session as the Nikkei 225 closed 0.6% lower to 23148 points. While the medium term trend remains somewhat intact as trailing ATR support has been respected, the series of lower daily highs is building significant selling pressure that could crack if the USD cannot make gains against Yen soon:

The ASX200 was the biggest loser, dragged down by the Westpac debacle – which fell more than 3% – as banks pulled the market 1.3% lower overall to close at 6722 points.  SPI futures are down another 20 points so it looks like the 6800 resistance level is firming once more. I said yesterday that the low moving average had to remain unbreached for the medium term trend to hold but yesterday’s session broke that, so watch for more selling below the 6700 point level:

European markets all retreated with mild selloffs, the German DAX falling some 0.3% to finish at 13158 points. The daily chart is morphing from a sideways consolidation to a dip, but still maintaining above multi-month resistance at 12700 points. The  low moving average has been breached so  watch the 13000 point level to come under stress here:

Wall Street sold off sharply with the S&P500 down nearly 1% going into the close to be below the 3100 point level again. The big break below the four hourly rising wedge pattern and through trailing ATR support is serious and takes the market back to the previous weekly resistance level.  Momentum readings are now negative so watch for a follow through:

On currency markets, the USD firmed against the majors in the wake of the trade deal hiccup with the Euro slowly easing back down and remaining well below the 1.11 handle. Momentum was overbought but not exceedingly so, as momentum starts to go negative, so be careful of the recent session lows at the mid 1.1050 to come under pressure

The USDJPY pair slowed in its bull trap rundown, finding some buying support at the 108.30 level and heading back to the 108.50 level overnight. This run seems almost over but I would watch for a breakout above the high moving average before getting excited:

The Australian dollar was the main casualty overnight as USD firmed with the Pacific Peso flopping below the 68 handle and nearly breaking its very tenuous short term uptrend from the previous weekly low. Overhead ATR resistance has been rejected in full and I now expect a run back down to last weeks low at the 67.70 level:

Oil prices have reversed again in a late rally with both Brent and WTI moving up in sync, the latter contract sharply rising to be just below the $57USD per barrel level. The daily chart was building a series of higher session lows but remains somewhat confused as price anchors around this level that has broadly held for several months now

Finally to gold, which basically just tread water overnight and is currently where it started at the $1473USD 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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