Macro Morning

See the latest Australian dollar analysis here:

Bonds boom as coronavirus deteriorates

By Chris Becker 

Friday night saw the return of US traders to their desks and waited for any news about the ongoing US/China trade negotiations, with a mild risk-off session the result. Wall Street didn’t make a new record high – shock and horror – while bond yields fell as markets price in a near zero chance of another rate cut from the Fed in December. The USD lost some ground, with gold firming slightly, while oil prices took a big reversal on concerns OPEC won’t extend production cuts.

It’s a big week of data as we get closer to the short Christmas/NY “break” so volatility is ramping up = more opportunity!

Looking at the action on Asian markets on Friday where the Shanghai Composite fell sharply after its poor showing previously, closing down 0.6% to 2871 points. as the 3000 point barrier firms as staunch resistance. Meanwhile the Hang Seng Index was the biggest loser, down 2% as markets absorb the potential for another round of protests this weekend. The daily chart was tentatively bullish but price action has nearly taken out all signs of support here as the session low almost matched the previous extreme lows:

Japanese share markets fell in the wake of Governor Kuroda’s speech with the Nikkei 225 closing down nearly 0.5% lower to 23293 points, as it continues to hover above daily support at the 23000 level. The medium term trend remains firm as trailing ATR support has been respected, but futures are indicating another pullback towards a continued sideways consolidation here in line with other directionless risk assets:

The ASX200 was holding on to a scratch session, but sold off in the close to finish down 0.3% to 6846 points, remaining well above previous 6800 points resistance level, now firming as support. SPI futures are up only five points or so, suggesting the start to the week will be quite benign as this overcooked market is ripe for a pullback:

European markets are still struggling with their own sideways bent, not helped by higher domestic currencies with the German DAX finishing with a scratch session at 13236 points while the FTSE fell nearly 1% even. The DAX daily chart is maintaining itself above multi-month resistance at 12700 points and not yet threatening trailing ATR support but no new daily high is starting to weigh on sentiment here so watch for a potential reversal:

Wall Street reopened after Thanksgiving but they probably should have had a long weekend as all three main bourses fell about 0.4% or so. The S&P500 fell back to 3143 points as it continues to  respect the 3100 point support area, but the divergence in momentum here is worrying, so watch the low moving average to come under threat:

On to currency markets, where the USD had some volatility against the majors, as EZ CPI surprised to the upside, sending Euro up through the 1.10 handle after previously breaking down from the poor German unemployment print. Price got back above the previous weekly low at the 1.0980 level so while there is still potential for a bottoming action here this volatility at the ATR trailin resistance level in the short term:

The USDJPY pair was looking to head to the 110 handle on Friday night but stumbled on the EZ CPI print, falling back to its mid week low just beneath the 109.50 level. As I said late last week, price action was looking a little bit too positive and ahead of itself with the potential for a swing lower from the extremely overbought position on any reason and here we have it. While the low moving average has been broken, lower ATR support just above the 109 handle is still being respected but further pullbacks towards that level might be warranteD:

The Australian dollar remains in a dominant downtrend, making another new weekly low on Friday night in the wake of lower commodity prices, closing below the previous weekly low at the 67.60 level. This week will be important for the Pacific Peso so watch for signs of increased volatility including to the upside above that trendline:

Oil prices were previously stable without much volume, which is always a good side for opportunity as the latest OPEC machinations and a big spike in inventories on Friday night saw a big selloff as the WTI contract reverted straight down to the mid $55USD per barrel level. The daily chart was looking bullish with momentum in overbought readings and suggested a trend back up to the $60 level, but the macros interject once more. Watch the previous daily lows below the $55 level to come under threat here:

Finally to gold, which after wilting here against USD strength for so long found a little bit of life on Friday night, reaching up to the high moving average and finishing at the $1463USD per ounce level. There is still hope here of price bottoming out but don’t get too excited unless that high moving average is breached very soon – at least $1470 or so is required:

 

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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