Macro Morning

See the latest Australian dollar analysis here:

Macro Afternoon

By Chris Becker 

Friday night saw volatility violently veer the other way with big surges on stocks and selloffs in safe havens like gold, Treasuries and Yen. Oh and Bitcoin which crashed down to $4000 before rebounding 50% (not a typo) to almost $6000! Stimulus was the reason as central banks decided to let the printing presses unleashed, with both the Fed and the Bank of Canada slashing rates while this morning the RBNZ stepped in as well to cut by 75bps. The RBA as usual, does SFA.

It should be a turbulent start to the week here in Asia as it plays catchup to the weekend developments.

Looking at Asian share markets from Friday first where the Shanghai Composite finished 1.3% lower after being down more the 3%, finishing at 2888 points. Meanwhile the Hang Seng Index fell nearly twice as fast, down nearly 6% mid session before recovering to only slip 1% to finish at 24032 points bouncing off the monthly uptrend. The lower black line is the trendline from the GFC 2008 lows – so perhaps not all is lost?

Japanese share markets were the biggest casualties in the region and didn’t see any bounce, despite Yen stabilising with the Nikkei 225 closing just over 6% lower to 17431 points. Futures are looking brighter however, although the magnitude compared to other markets might be dampened a little with momentum still considerably oversold with the daily chart not yet pointing to a sustainable bounce:

The ASX200 was the first to reverse into positive territory and then surged at the close to finish over 4% higher at 5539 points in a stunning turnaround. SPI futures are up 1% or so, with the bounce likely to continue as the daily chart shows a big engulfing bullish candle – nothing like a few hundred billion in Fed stimulus to get bank stocks moving!

European markets were less sanguine although there were improvements across the board, with the broader Eurostoxx 50 up 1.6% while the German DAX only limped a little higher to finish at 9232 points. This is barely nothing in the scheme of things and requires much more bounce before calling this correction over, although post close futures are seeing a nice move higher but not the same height as Wall Street:

Wall Street loves its hand holding Fed providing more punchbowl – QE5 here we come! The S&P500 soared nearly 10% in a single session, pushing back above the long held trendline from the 2008 lows and almost getting back above key support at the 2700 point level. This is where to watch this week and must be sustained above that level to call this a repeat of the March 2008 fightback (I contend we’re in for a sideways bear market for the remainder of the year):

Onto currency markets where the combined – if not co-ordinated – central bank action is pushing USD pairs around everywhere, and its started early this morning with more cuts coming! The Euro continued its melt on Friday night, almost breaching the 1.10 handle, but that has been reversed this morning on the Monday morning gap with a spike up to the 1.12 handle with the weaker USD meme playing:  :

The USDJPY pair showed the way with a break above temporary resistance the 105.50 level pushing the pair straight into the 108’s on Friday night before a large gap down this morning on the back of the Fed rate cuts. This will likely see a move back to that level or some stability just above the low moving average on the four hourly chart as volatility ramps up:

The Australian dollar was another big casualty on Friday night, with another 200 pip fall straight through to the 61 level before – you guessed it – another gap higher this morning back up to the 63 handle. It’s enough to make currency traders drink before midday. I noted last week that four hourly ATR was nearly triple the average, indicating far too much volatility and this is set to continue this week although macro concerns should push the Pacific Peso back over again:

Oil remains the problem child although Brent rose nearly 4% while WTI crude was up 3% or so, these are relatively minor moves in what remains a depressed market. The daily WTI crude chart shows a tight bunch up of price around the $30-33USD per barrel level but will the Fed stimulus be enough to get it moving out of this area? The oil supply battle continues to rage, so I doubt it, perhaps a short term explosive move higher before another leg down:

Finally to gold, which has had an epic ride after spiking above the $1700USD per ounce level and has now fallen nearly $200 during the week as it plays catchup to the coronavirus boondoggle. The weekly megaphone pattern has been broken but on the open this morning, gold has gapped some $30USD higher which could stave off wider selling in the short term:

 

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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