Macro Morning

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Australian dollar now a golden rocket

By Chris Becker 

Another shift in sentiment overnight as the risk complex hinges on good economic news and possible coronavirus vaccine developments. Wall Street swung back in favour as the latest durable goods order surprised slightly on the upside, while in Europe the closely watched IFO survey gave some hope yet stock markets were lacklustre. The big news is the new yearly lows in the USD with record highs in gold, silver and almost Bitcoin, while the majors like Euro and Pound Sterling advanced to monthly highs.

Looking at share markets in Asia from yesterday’s session where the Shanghai Composite closed up a handful of points to 3205, trying to recover from near 4% falls on Friday. Meanwhile in Hong Kong, further worries about the spread of coronavirus has seen the Hang Seng Index off by nearly 0.5% to 24603 points. The daily chart shows key daily ATR support ready to fold and possible turn this small dip into a wider correction:

Japanese stocks finally reopened after a very long weekend, but did not fall as expected with the Nikkei 225 closing only 0.2% lower to 22715 points. Futures however are indicating a possible rebound on the open this morning in line with other risk assets, with mild support at the 22300 point level looking to hold in the short term, but it’s nothing to get real excited about:

The ASX200 was looking to break below the 6000 point psychological level but instead was buoyed by commodity stocks and gold miners to finish 0.3% higher to 6044 points. SPI futures are up nearly 30 points or 0.5% so at worst we get a bullish sideways trend here, although that could again hinge on the Victorian breakout. I’m still watching support closely at both the 6000 point and 5800 point ATR level:

European markets had some good economic reports to cling onto but the much higher Euro and Pound Sterling continue to weigh down with scratch or minor falls across the continent. The German DAX literally closed with a scratch result, moving nowhere to finish at 12838 points. Momentum has rolled over from its overbought status but price remains firm above the low moving average – only just:

Wall Street found a little traction on the durable goods order print with the NASDAQ bursting up nearly 1.7% while the S&P500 finished 0.7% higher to 3239 points. The four hourly chart shows how price has bounced off the 3200 point support level where it found some firmness on Friday night. Tonight’s session is key to try to get it back on trend and/or up to the former highs at 3260 or so, but watch that zone for any signs of a swing back down:

Currency markets remain heavily concentrated as USD sellers with all the majors again advancing to monthly or even record highs as King Dollar takes a near two year nosedive. The Euro pushed straight up through the 1.17 handle on the City open after gapping higher yesterday morning. As I said yesterday, “overbought” or “oversold” sometimes doesn’t matter for currencies as they can continue upwards as necessary. The four hourly price pattern shows a small amount of exhaustion with deceleration in the last two sessions, but only just:

The USDJPY pair was pushed lower as expected with a determined push below the 106 level on the Monday morning gap open down into the low 105’s with also some minor signs of deceleration. Note how four hourly momentum is reverting a small way, but nothing to get excited about just yet:

The Australian dollar came back after its relatively quiet Friday night as it continued to follow the stocks and risk assets, pushing back up through the 71 handle and almost matching its previous weekly high. The bounce off of four hourly ATR support at the 70.60 level should continue today as commodities move higher:

Oil futures were relatively stable given the lower USD with the Brent marker almost able to get back near the $44USD per barrel level, starting the week out just below as price remains listless. Daily momentum had been pushed into the overbought mode and support has been very firm, but this is looking tiresome, so be prepared for a violent breakout either way soon:

Gold finally beats its record high with a stonking single session to close at the $1942USD per ounce level. This has been a textbook blowout FOMO trend with momentum now twice off the charts – this can only resolve in a snapback, but with everyone piling into anything not USD going into the US presidential “election”, anything can happen:

 

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. anyone keen to rally on the unloved/less loved gold stocks? if the Fed keeps the foot on the pedal (looking forward to Wed), maybe they are next to rally……. worth a small punt. Any other metals yet to join the party?

    • DominicMEMBER

      The interesting one is platinum — that used to trade at a big premium to gold and now at a very big discount.

      The theory goes that platinum has reverted to an industrial metal and is no longer fashionable in jewellery either. Worth just keeping an eye on the story though.

      • yep, heard that the other day, but I can’t recall too much only that continued USD weakness is needed. Same with nickel. Al3+ associated with growth but so too copper and clearly that’s not relevant, so I am looking at those 3 (Pt, Ni, Al3+, not Cu so much anymore) plus unloved Au junior stocks (only because obviously they are unloved for a reason but if by chance they are also ponied up on the ponzi, upside should be good). Disclaimer: I have no idea what I am doing, not my fault if anyone does anything similar, could obviously go spectacularly wrong but if it’s only small ‘what me worry’?

  2. According to many of the foreign pm commentators/analysts I follow they are saying that now that institutional money is finally moving into pms all the dips are being bought. They reckon this explains the change in price action and why there haven’t been any significant sell offs like there usually are

    • DominicMEMBER

      I read 2 days ago that allocations to gold in investment portfolios is moving toward 0.5% (in aggregate).

      Now then, tell me where gold would be trading if the prevailing narrative suggested a 10% allocation (which, by the way, is not unreasonable).

      • I started a scan on some of the unloved Au stock, not many were sold on the March liquidation. Positions were added at the lows by insiders in some. That’s one of the bullish messages I got. It’s hard to get in early on something hence small for now but if the Fed creates a pullback I might look to add as that TGA still needs to be spent. Disclaimer again: I have no idea what I am doing

        • Gold is horribly volatile so grit your teeth. I’m looking to lighten up a bit on miners in the next few weeks so that I can reload down the line. That said, if you’re in it for the longer term, just buy quality and forget about it for a while. The next few years will be good for both gold and commodities (perhaps the latter outperforming, even if that sounds counterintuitive). Certainly silver is going to have a cracking run.

      • Yeah Rick Rule has been banging on about the under allocation by north American investors for some time now, which gave me a little more confidence (I’ve been burnt by the bear market and was a bit slow to really see, esp in my portfolio) that the bull market in miners had started. However I’ve corrected that and I’m starting to see some very nice results

        • Good to hear, Pop. There are lots of spruikers in the gold space – especially when it starts to run. However Rick Rule is always good value and always measured in tone. Articulate, humble and very smart.

          • Yeah I love RR. His method of expression is wonderful.

            I’m very reluctant to buy anything more atm. I just want to top up on one junior I bought 12-18 months ago that is under performing the market atm, but it looks like it is slowly starting to make a move. Other than that, I think if there is a big correction later this year then I might put my usual $500 into a few more miners just to spread my love and risk around and then I’m done (I’m getting towards my upper limit of the number of miners I can effectively keep track of all updates etc). I’ll monitor and just let it all run. I’m not trading this, which is again what I have learnt (I’ve learnt not to have stop losses either, I got stopped out of NST and EVN when Trump won) from my own experience with gold stocks, and a lot of advice seems to be just buy quality companies and hold them. The market can move so much in either direction I think you just accept you’re on a roller coaster rise and leave it at that. I’m making sure I deepen my understanding of the macro environment as I think that will be the most important thing to inform selling. I’m determined to make intelligent sell decisions and to let the winners run (I need a bl00dy house and it’s quite likely my income earning opportunities are pretty sketchy going forward long term so if I can get some ‘life-changing gains’ out of this bull market I want to make sure I give myself every opportunity of doing so).

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