Macro Morning

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Australian dollar soars as global markets melt down

By Chris Becker 

The risk complex is getting increasingly concerned about the Chinese virus, but in reality anything could send the bubble popping, with stock markets in particular still extremely overextended. European bourses fell shortly after the rout here in Asia yesterday, while Wall Street held on and made only scratch sessions as safe haven buying in Treasuries, Yen and gold were the order of the day.

Looking at Asian share markets yesterday where Chinese stocks lead the selloffs, with the Shanghai Composite falling nearly 3% to close just below the long held 3000 point barrier. Meanwhile the Hang Seng Index was looking to put in a similar session before recovering only slightly to be down nearly 2% at 27909 points. This puts it well below trailing support and ready to breakdown further as all confidence is wiped out:

Japanese share markets didn’t escape the carnage either as safe haven buying in Yen accelerated. The Nikkei 225 closed nearly 1% lower to 23795 points, wiping out the previous gains and now back below the key 24000 point resistance level. I’m watching for a potential follow through here with another close below the low moving average although momentum remains positive:

The ASX200 was the relative best, absorbing both the risk off mood and a higher Aussie dollar, losing only 0.6% to 7087 points. SPI futures are up about 20 points but I still contend that the daily chart is really setting up for a top here as momentum crosses over from an extremely overbought level:

European markets fell back again with broad losses, with the German DAX again losing nearly 1% to 13388 points. This brings price back below the previous upside resistance level at 13450 points although futures saw a little fill later in the session. The crossover of momentum is setting up a short term swing play lower but not yet a full selloff:

Wall Street is still all about hesitation but no major selling so far with the S&P500 actually finishing 2 points higher this time to 3324, having so far gone nowhere this week in a very welcome consolidation.  The four hourly chart shows how price continues to consolidate above ATR support, with momentum remaining positive too:

Currency markets continue to gain in volatility although Pound Sterling was relatively stable it was all about the ECB overnight with Euro flopping right through what little buying support it had to to punch below well the 1.11 handle. The short term potential swing higher was squashed and this new move sends it well below weekly support and for a run to the 1.09 level:

The USDJPY pair continues to deflate pushing further below the 110 handle and remaining well oversold with only a minor blip higher in the final session overnight.  I’m watching this pair again as further buying of Yen could auger a wider risk-off move:

The Australian dollar has had a rough ride in the last 24 hours, observing the unemployment print and the change in rate expectations and then a stronger USD overnight to see it back where it started at the the previous week lows at the 68.50 level. The downtrend is dominant but there is potential for more positioning leading up to the RBA meeting soon:

Oil prices continue to fall on fears of a lack of demand with the WTI contract again selling off to close above the $55USD per barrel level. Momentum had previously flipped to the downside, and with the previous $57.50 session lows tested and found wanting, the downside target could be as low as $50 here:

Finally to gold, which continues to hold on fine here, finishing slightly higher to be just above the $1560USD per ounce level but still below its own high moving average. The daily chart is showing a nice consolidation following the bubble like move above $1600 with ATR support at the $1540 level holding firm but nothing to excite the senses for a swing higher for now – watch for more upside above the high moving average:

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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