Macro Morning

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Lunatic RBA discovers quantitiave easing drops Australian dollar

By Chris Becker 

A hiccup in risk taking overnight as stock traders read the fineprint attached to the new vaccine news, coupled with steeper than expected declines in a variety of economic reports, namely housing starts, European unemployment and the closely watched German ZEW survey. Gold held on while other major currencies fell back slightly from their big moves against USD from the previous session, while oil and other commodities were mixed at best.

Looking at share markets from yesterday’s session where the Shanghai Composite finished up nearly 1% to be one or two points shy of 2900, while the Hang Seng Index was the best in the region, surging over 2.2% to 24464 points, but not yet blasting off into a full blown breakout. The daily price chart still hows a consolidation as a rectangle pattern with no new breakouts as yet, although momentum remains on the positive side for now:

Japanese share markets have broken free with the Nikkei 225 rising 1.5% to 20433 points to a new post breakdown high. This takes it past the previous gap down level from the February/March lows but futures are looking a bit tenuous here as momentum gets slightly overbought, so we could see a small pullback today but support at the 19400 level  remains firm here:

The ASX200 was solid and stayed higher throughout the session, finishing 1.8% higher to 5559 points. SPI futures are down nearly 1.5% in response to the hiccups on Wall Street overnight, so this breakout may trip before it gets really started, although all the conditions are ripe – including delusion – for a run up to 6000 points:

European markets were unable to make bigger strides after a great whopping start to the week, with most falling back or putting in scratch sessions with the German DAX the only bourse to advance, but its all relative – up only a handful of points to 11075. Note how futures show further retracement below the 11000 point level during the last hours of Wall Street trading and how price is still unable to tackle the once strong overhead resistance:

Wall Street was poised here to breakout but it stumbled once more as the S&P500 finished exactly 1% lower to 2922 points, rebuffing trailing ATR daily resistance. The BTFD crowd are showing that they still can’t read or understand medical reports (or basic maths!) but don’t discount another attempt to breach this resistance and have another go at the 3000 point level:

Onto currency markets where the volatility reverted somewhat with an extremely overbought Euro unsurprisingly coming back down to planet Earth, helped by the poor ZEW survey and finishing this morning nearer the 1.09 level. I said yesterday that this breakout should result in a pullback to the previous highs, now support at the 1.09 handle itself, so look for a follow through below that level for a proper short swing trade in the short term:

The USDJPY pair was able to maintain its gains a little better with only a minor pullback before re-engaging to be just below the 108 handle and still well above last week’s trendline pattern.  Momentum remains positive on the four hourly chart with the potential for a return above the previous session highs:

The Australian dollar was basically in between the two majors, pulling back from an obviously overbought trend that ran out of puff, but also rejecting overhead resistance that needs to be cleared to start any new medium term trend. An inability to get above the weekly highs at the 65.60 level is telling – watch for another rollover here:

Oil prices abated a little which isn’t surprising with Brent crude slipping back below the $35USD per barrel level in the next stage of a classic blowout pattern, after finishing the recent bottoming pattern here.  I contend we are near the end of this move but wouldn’t be surprised at another lurching, overbought and overdone blowout that could even hit the $40 level before all the longs are exhausted:

And, finally to gold, which after being sold off slightly as other risk assets were more interesting is still showing signs of life with a small move higher to finish at the $1744USD per ounce level.  Watch for a breakout above the high moving average high on the daily chart as the target for this breakout is still the 2011 highs at $1825 or so:

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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