Macro Morning

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Australian dollar drops as RBA talks it down

By Chris Becker 

European stocks sagged while Wall Street surged despite another record day of new coronavirus cases, deaths and hospitalisations across the USA. The USD continues to slump against everything, with gold and silver soaring once again overnight, while all other industrial metals slipped or were steady. It looks like a green day across Asian stock markets, but only just as hesitation continues despite Wall Street leading the way.

Looking at share markets in Asia from yesterday where the Shanghai Composite was the odd one out, advancing 0.3% to close at 3333 points while in Hong Kong the Hang Seng Index retreated at first and then slumped at the close, finishing over 2% lower at 25057 points. The daily chart now shows a near full retracement of the bounce off support at the 25000 point barrier, but as I’ve been warning this remains wobbly at best. Watch the low moving average and momentum readings here for signs of a full inversion:

Japanese stocks had similar falls as Yen remained strong, with the Nikkei 225 closing 0.6% lower to 22751 points. Futures are dead flat this morning, so yet another attempt towards the 23000 point level looks thwarted again, as buying conviction remains doubtful and the daily price pattern remains tight:

The ASX200 was the standout in the region but for the wrong reason, taking back half of its previous gains to finish 1.3% lower at 6075 points. SPI futures are up only a handful of points so it remains to be seen given the news of the record federal deficit and the much higher Aussie dollar if this market can sustain the short term small uptrend here around the 6000 point level:

European markets were all over the place with continental stocks falling, as did FTSE but the German DAX finished only 0.5% lower before regaining some in futures alongside Wall Street. There is still a clear technical breakout signal on the daily chart and momentum remains nicely overbought, but price is getting ahead of itself above the high moving average which could translate into slower gains from here:

Wall Street had another strange night with the Dow advancing the most while the NASDAQ gained nearly 0.3% but remained stalled while the broader S&P gave the clearest signal by closing some 0.6% higher to 3276 points. The four hourly chart still shows a breakout and strong upside momentum here, so watch for the previous highs above the 3275 point area for another breakout trade:

Currency markets remain binary with USD continuing its sell off against everything, with Euro making another new yearly high above the 1.15 handle on the back of the EU fiscal sharing package. This remains way overbought and is now showing signs of a pullback, but as I warned yesterday, anything could happen here given the interventions by fiscal and monetary authorities. I’m watching the low moving average at just below the 1.15 handle for short term signs of an unlikely swing down:

The USDJPY pair was the odd one out, lifting on the risk on trade in stocks with a move back to the 107 handle after bouncing off the weekly lows at the 106.70 level. Momentum has flipped back to positive on the four hourly chart, but resistance is already pushing it back down at the 107.20 level so this maybe very short lived:

The Australian dollar followed stocks but seems to be slowing down, with the last few four hourly sessions heading back to the 71.30 level overnight. I’d watch the 71 handle proper here for signs of a reversion but so far support at 71.20 looks very firm in the short term:

Oil is  finding some life in line with the weaker USD with Brent futures heading up above the $44USD per barrel level, almost making a new daily high before a weak finish. Daily momentum has pushed into the overbought mode and support has been very firm, so watch for a big fill once the $44 mark is breached:

Gold – and silver – continue to make a new daily/weekly/monthly/yearly high, the former closing at the $1872USD per ounce level in another very strong move overnight. This takes the shiny metal well past the 2011 closing high but not the intrasession record high at $1920 – are we heading there next?

 

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. Banana ManMEMBER

    I don’t want you to hate on me but i’m with doc x. There is a sweeping wave of freedoms being robbed from us. This is why the good doc is so insistant. Think about all the laws, elbows out the window so you can say gday to the bloke next to you etc. Look at the silly chi naman hat that the emporor made everyone wear so they couldn’t conspire. How many deaths does covid rank compared to smoking, bowel cancer from maccas etc. Wake up. Yes, i’m an island. I can take your words.

    • boomengineeringMEMBER

      You’re not a lone island, it’s just the shape of our shoreline that differs.

    • The question isn’t, really, how bad is Covid now – it’s how bad would it be without lockdowns, distancing, etc.

      I think private citizenry would ‘lockdown’ anyway, once things got sufficiently bad – same sort of result, different route (with the private route probably worse economically and medically in the long term).