Macro Morning

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Australia dollar tumbles as US property booms

By Chris Becker 

A big reversal in sentiment overnight as stock markets reacted positively to the speculation that the December 15 US/China tariffs may be avoided with a secure trade deal. The USD sold off as a result, alongside bonds, as oil prices also spiked more than 3% as the latest US ISM Services print disappointed.

Looking at the action on Asian markets yesterday where the Shanghai Composite slipped some 0.25%, not helped by the weaker Yuan and closed below the 2900 point level again at 2878 points. The Hang Seng Index fell over 1.2% and confirmed its recent breakdown, closing at 26082 points. While this took out recent daily support and could possibly send the bourse closer to monthly support nearer the 25400 level, the overnight action could be filled in todays session, but watch former support now resistance at 26500 points:

Japanese share markets continued to tumble in line with the risk proxy USDJPY pair, with the Nikkei 225 closing over 1% lower to 23135 points, only just clinging above daily support at the 23000 level. Trailing ATR support has been respected during this consolidation, and given the bounce back in USDJPY,  futures are indicating a bounce off that level this morning, but probably not as high as the high moving average  which is providing firm medium term resistance:

The ASX200 was again the biggest loser, closing 1.6% lower to 6606 points, wiping out almost all of two months gains in only a few short days.  SPI futures however are up nearly 60 points so the 6600 point level should provide a decent uncle point for the bottom pickers wanting to get back in the action. If it doesn’t hold, the September low at 6400 remains the target here:

European markets surged forward despite volatility in domestic currencies with the German DAX lifting more than 1% alongside other continental bourses, staving off a selloff below key support below the 13000 point level. Momentum readings have now bounced higher after briefly hitting negative territory, with the short term term target at reisstance overhead at 13300 points:

Wall Street’s  bounceback was about half that of the Europeans with the three main markets all lifting around 0.6% or so, not helped by the spike in oil prices. The S&P500 took back its recent falls  and lifted back above the 3100 point former support area after threatening to breakdown completely. The four hourly chart shows this fill clearly, taking price back to the short term uptrend, but overhead ATR trailing resistance needs to be broken with positive momentum again before calling this dip oveR:

Volatility in USD continues but each way with Pound Sterling spiking again while Euro flipped and flopped around the 1.11 handle before settling at key short term support at the 1.1070 level. Previous price action has been too volatile to ascertain so some caution and sideways movement here would be encouraging:

The USDJPY pair bounced off its recent low as Yen buyers deserted on the risk-on sentiment, sending the pair almost back up to the 109 handle in a nice swing long play. However, the overall move remains down with only a short term bounce for risk assets here in Asia likely if price cannot sustain positive momentum and breach the 109 level:

The Australian dollar came back again overnight, after going through a small selloff due to the latest GDP print, again finishing near the mid 68 level. I’m watching the recent high at the 68.60 level to come under pressure and confirm the bullish AUD theory here as momentum remains nicely overbought for it continue:

Oil prices came back strongly overnight on the weaker USD with the WTI contract up over 3% to close well above the $58USD per barrel level. The daily chart shows how the session highs are now all matched and ready to breakout again but I’m wary of a return to a strong USD that could wipe out sentiment:

Finally to gold, which was unable to turn the recent breakout into anything substantial, remaing at the $1477USD per ounce level, almost back to prior support now firm resistance at the $1480 level.  A sustainable trend needs to take out that resistance level, plus trailing ATR  and then the psychologically important $1500 level before getting excited:

 

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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