Macro Morning

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Australian dollar soars as global markets melt down

By Chris Becker 

Fear is the quick path to selling as the risk complex is increasingly worried about the Chinese virus, as extremely overextended stock markets unsurprisingly fall. European bourses fell nearly 3% overnight while Wall Street slid about half that as ASX futures indicating a near 2% drop on the open after the long weekend. The race to safe havens continues with Yen, gold and even Bitcoin surging while oil prices slump on the inevitable decrease in international traffic.

Looking at Asian share markets yesterday where Chinese stocks remain closed during the Lunar New Year holiday – which may be artificially extended by the virus crisis.

Japanese share markets bore the brunt of the weekend news with the Nikkei 225 closing just over 2% lower to 23343 points, wiping out the gains since November and well below the previous 24000 point resistance level. This is an obvious setup for further falls so watch the trailing daily and weekly ATR support level at 22800 points:

The ASX200 was closed for the Australia Day holiday with SPI futures indicating at least a 1.5% rout on the open this morning, with the 7000 point barrier to be pushed aside swiftly. The market was already extended and at an extremely overbought level so this could result in a violent reversal back through key support at 6800:

European markets fell back again with broad losses, with the German DAX losing nearly 3% to 13204 points. This takes price back below the Xmas rally levels and back to the November point of control, about to threaten ATR support but momentum still holding on. Volatility is obviously obscuring the trend here, so watch for support at 13000 to hold:

Wall Street was in hesitation mode up until Friday night, but the selloff accelerated overnight with the S&P500 slumping 1.6% lower to 3243 points, wiping out all of January’s gains. The daily chart shows how price could continue this selloff to a more sustainable path at the 3100 support level as daily momentum flips:

Currency markets have a much steadier hand in comparison to stocks, with both Pound Sterling and Euro in a slow melt lower as the strong USD meme continues apace. The union currency almost broke through the 1.10 handle, following through on its selloff from last week. With weekly support taken out this still sets up for a run to the 1.09 level, but with the potential for a small swing higher:

The USDJPY pair continues to deflate with a big gap on the Monday morning open below the 109 handle and remaining well oversold overnight with no new session highs on the four hourly chart pointing to further Yen strength on the safe haven bid. As I said last week, this pair remains the one to watch to auger a wider risk-off move:

The Australian dollar continues its own rough ride with a lack of trading volume on Monday seeing it break right through the 68 level against USD and now in a very oversold position going into the end of the month. With the RBA meeting around the corner soon there could be a small blip higher, but this seems to be directly correlated to the risk off trade for now:

Oil prices are being dumped due to fears of a lack of demand with the WTI contract now barreling in on the $52USD per barrel level. Momentum is nearly off the charts here as the previously extended long positions are flipped to the downside, with my downside target at the $50 level still in play here:

Finally to gold, which is now gaining on the safe haven bid, gapping higher above its previous daily highs to above the $1580USD per ounce level and now well above its own high moving average. The daily chart showed a nice consolidation following the bubble like move above $1600 with ATR support at the $1540 level continuing to hold firm but this move gives it a daily close above the previous price action and sets up for a return to the $1600USD level:

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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