Macro Morning

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Australian dollar drops as RBA talks it down

By Chris Becker 

The mild start to the trading week here in Asia translated into much firmer gains once Wall Street opened, due to the promising vaccine news and potential fiscal stimulus from the EU and US Congress. The NASDAQ blew out over 2% higher to a new record high, with stock markets given the technical go ahead to keep bidding higher. Gold broke out as well to new highs, while other undollar assets like Euro and Aussie went along for the ride, commodities are relatively flat.

Looking at share markets in Asia from yesterday where  the Shanghai Composite has bounced back sharply after its poor week previously, up over 3% to 3314 points while in Hong Kong the Hang Seng Index put in a scratch session to finish 0.1% lower at 25057 points. The daily chart shows the full retracement of the big breakout above the 25000 point barrier, but support has firmed above the stable ATR trailing support level with futures indicating a catch-up bounce, although price must firm above the low moving average to stop this retracement turning into a proper downtrend:

Japanese stocks also slipped into scratch mode with the Nikkei 225 up only 0.1% to finish at 22717 points. Futures are relatively stable here despite the big rise on Wall Street, so another move towards the 23000 point level is likely, but without much conviction so far so watch price gravitate around the high moving average for now:

The ASX200 opened higher for only a few minutes and then fell throughout the day to finish 0.5% lower at 6001 points. SPI futures are up over 40 points so we should see a sympathetic move higher on the Wall Street breakout as momentum remains positive and price wants to maintain itself above the 6000 point level:

European markets had broad gains as hope rose of more stimulus from the EU summit, and then rose again following Wall Street. The German DAX finished 1% higher to 13046 points, surpassing its previous high and creating a clear technical breakout signal on the daily chart.  Momentum is nicely overbought, price is above the high moving average – all longs are in:

Wall Street was the catalyst for this risk on move overnight with clear breakouts on the S&P and NASDAQ, the former launching 0.8% higher to 3252 points, albeit on only a handful of companies as market breadth remains ridiculously thin. The four hourly chart shows the breakout quite clearly and sets up for more gains as the FOMO trade moves in:

With the NASDAQ giving the clearest signal that this bubble is not yet over – the daily chart showed a break of the bearish rising wedge pattern but hadn’t been confirmed yet by a break below key support at the 10400 point level, instead launching nearly 3% to a new record high:

Currency markets had relatively little volatility again with Euro making a new weekly high and then settling at the 1.1440 level with momentum continuining to push this medium term trend into something sustainable. Watch the 1.14 handle to firm as support going into the rest of the week as the EC summit continues:

The USDJPY pair was unable to move again, with price now in a relatively narrow pattern between the 107 and 107.30 support and resistance levels overnight.  Momentum remains positive on the four hourly chart, but only just, so this bears (sic) watching if resistance overhead continues to be held back:

The Australian dollar followed stocks with a swing back up through the 70 handle, almost matching last week’s intrasession high and setting up for more gains locally. However, this will depend on the double whammy release of the last RBA minutes and a speech by Governor Lowe today, so watch for price to firm above the 69.90 resistance level:

Oil started the week with a whimper, with not much change on both markers with Brent futures slipping again to remain to just above the $43USD per barrel level, still unable to make good on the previous series of new daily highs. While daily momentum remains positive and support is firm at the $40 level, I still contend we need a burst through the $44 mark to get going:

Gold shot out of the gates to make a new daily/weekly/monthly/yearly high, closing at the $1817USD per ounce level overnight. The lack of selling near the low moving average level while being so oversold gave the trigger here to re-engage longs and get this trend moving again:

 

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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Comments

  1. Where’s the pull back in gold? I would feel more comfortable if it went up at a slightly less vertical pace on charts.

    • I am waiting for same but could be wrong. Yesterday started buying some PMGOLD for just in case it never goes down again.

      • I started buying extra gold stocks in April when I realised that if the general market tanks again gold might not, or not as much. I’m basically now all invested but I have a tentative shopping list for a pull back if it eventuates. There could be one last major buying opportunity but there might not be. I bought some physical during March and April, it’s a bit underwater atm because of the strong AUD, but no regrets just glad I have it.