Macro Morning

See the latest Australian dollar analysis here:

Macro Afternoon

By Chris Becker 

Not a good time to try to time your way around these markets with Wall Street slumping again out of the blue on Friday night. Despite the record and widespread adoption of both fiscal and monetary stimulus packages around the world, equity markets are still pricing in severe recessions for the rest of 2020 as the next series of lockdowns and social distancing measures are put in place to hold back the coronavirus spread. Safe havens advanced again, with gold up towards but not over the $1500USD per ounce level, 10 year Treasury yields fell nearly 30bps to 0.87% while the Australian dollar is barely hanging on at the 58 cent mark against USD.

Its going to be a wild and woolly week here in Asia, starting up again after the weekend gap, so expect volatility as the norm. And people trying to catch falling knives..

Looking at Asian share markets on Friday, where the Shanghai Composite lept at the close to finish 1.6% higher at 2745 points. The Hang Seng Index had a big surge at the close, up nearly 5% to 22805 points. However, its time to look at the weekly chart which still is showing significant weighing down below the 2008 uptrend line (lower horizontal black line) as momentum remains well oversold:

Japanese share markets were closed for a holiday, which was probably a good thing in the end. The weekly chart of the Nikkei 225 shows price hovering just on the 17000 point level but not showed is the likely terminus here at 15000 points, the 2015 lows – stay tuned:

The ASX200 was able to eke out a small return on Friday, closing 0.7% higher to 4816 points but  SPI futures are down nearly 2% and are likely to drop further given the lockdowns and new measures in place locally as the prospects of wider economic damaged hit. The weekly chart shows a breach of the 2015 lows, so the technical picture is warning of a return to the GFC lows at 3200-4000 points or so. Yes -we are still a long way from the bottom in my opinion:

European markets had a very good session, save the FTSE which went nowhere, with the Eurostoxx 50 up nearly 4% while the German DAX finished 3.7% higher at 8928 points. This was before the Wall Street close and post-close futures indicate a big gap down when trading resumes tonight. The DAX weekly chart shows a market not yet finishing its selloff with the 2008 uptrend broken, 2015 lows broken – and now on target to get back to the GFC levels around 5000 points:

Wall Street set the real tone to finish the week, with all three bourses tripping and falling over each other to go underweight everything as the Trump virus continues to surge. The S&P500 eventually closed 3.4% lower to 2304 points. Unlike other equity markets this represents only a fall to the early 2017 levels, not 2015 or lower due to the bubble in US stocks since the Trump inauguration and subsequent tax cuts. This has now disappeared and likely to retrace even further with the weekly chart showing no signs of any stopping as price continues to fall down the elevator shaft:

Onto currency markets where volatility eased off only a little with some consolidation on Friday night, but its going to be a tough open here in FX land this morning. Good Dog below I hate the lack of weekend trading! The daily chart of Euro is illustrative – a temporary bottom here as King USD continues to firm – but momentum is only slightly oversold so there is potential for a short term swing trade:

The USDJPY pair is no longer providing any risk proxy status at all with the pair rallying up to the 110 handle and almost above the pre-crash levels experienced in February when this all went unhinged. The daily chart shows the strength of USD overtaking the usual Yen safe haven buying but it does look overextended in the short term. I’m watching for a short term reversion here but if the 112 handle is broken (top black line) I don’t think anyone will step in:

The Australian dollar tried to make a comeback but was unable to make anything stick on Friday night, eventually falling back to the 58 level. This morning it should break that small symmetrical triangle pattern on the daily chart and then head to new lows. The trajectory for Aussie is quite clear – down:

Oil fell back sharply with another large selloff on Friday night with WTI falling 10% to finish the week at just below the $24USD per barrel level. The weekly chart is the clearest intent of what’s going to happen here – there’s still more downside despite the epic oversold nature of momentum with price having cleared the GFC lows, and the norm of 10-20% rallies and selloffs presaging further volatility ahead – anyone ready for single digit oil prices?

Finally to gold, which remains the most interesting market to trade IMHO! Another wild night that saw it breach the $1500USD per barrel level before settling just below at the close. The weekly chart shows the megaphone pattern completing the short term short position, but support holding at the October 2019 lows at $1450. Will this safe haven beat out all others?

 

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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