Macro Morning

See the latest Australian dollar analysis here:

Australian dollar badly lags commodities rocketship

Markets restarted the week with volatility, as hopes and fears over stimulus and 2nd Trump impeachment collided with the USD providing the safe haven of choice. Oil prices came off only slightly as a result while other commodities pulled back, but the real news was in “stable next currency to replace everything” Bitcoin. After breaching the $41,000 level for a new high it gapped down yesterday and kept falling, off by more than 20% before rebounding to the $34000 level earlier this morning. Can it back on trend?

Looking at share markets in Asia from yesterday where the Shanghai Composite was looking to put in a scratch session but fell sharply going into the close, down 1% to 3531 points, while in Hong Kong the Hang Seng Index was looking to breakout even further but was pulled back to finish only 0.1% higher at 27901 points. The daily chart is showing this breakout easing off slightly into a more sustainable trend as momentum reverts backs from its levels, with the possibility of a pull back below the high moving average rising if this risk averse mood continues:

Japanese stock markets were closed with Nikkei 225 futures suggesting a pullback towards or even below the 28000 points level after its recent clear breakout on the daily and weekly chart. Again its time to watch Yen which remains under pressure but maybe topping out so the end of this tailwind could spell reduced upside going ahead:

The ASX200 was the standout, unable to comeback after a seemingly good retail sales number and losing nearly 1% to finish just below the former 6700 point barrier. SPI futures are in retreat mode still and while the daily chart has formed a nice rectangle pattern here, with clear uncle and breakout points to trade around, the lack of any upside is weighing as momentum inverts back below the overbought levels usually required for a breakout:

European markets were red across the board last night as concerns came back regarding possible US stimulus with the FTSE down 1% while the German DAX was 0.9% lower at 13928 points. The solid push above the previous highs as it reaches the 14000 point level was considerably overbought but this is only a minor retracement as price remains supported well above the low moving average (the usual uncle/tightening point when getting out of trends):

Wall Street fell with the NASDAQ off by more than 1% as the S&P500 took back its previous gains to close 0.6% lower, just below 3800 points. The four hourly chart shows only a small hesistation here above the previous high as the S&P500 wants to accelerate further, but stops remain quite wide as volatility remains in check until Trump is kicked out or leaves:

Currency markets were left to focus on macro/political events with a lack of economic releases, with the strong USD weighing significantly on the Euro which dropped below the 1.22 handle and settled at the mid 1.21 mark this morning. This takes out weekly support at the 1.2170 level but the conditions are ripe for a short term swing play higher:

The USDJPY pair is starting to decelerate out of its rebound, able to push above the 104 level but starting to run out of steam here despite the stronger USD. This keeps it well above the late December false breakout high and considerably, but I’m still wary of recent price action that shows 104 is a key resistance area, at least in the short term:

The Australian dollar was also unable to hold onto its recent overbought gains with the stronger USD pushing it below the 77 handle but only just overnight. This kicks it out of the recent trend channel even as commodity prices remain very well supported, but the Pacific Peso maybe reverting to a risk proxy in the short term as momentum goes negative. I’m watching for another session low below the 76.60 as a precursor to a broader sell-off:

Oil prices were getting very frothy and pulled back slightly overnight on the stronger USD with Brent crude dropping below the $56USD per barrel level in a small retracement. This keeps it well above the pre COVID February 2020 level (upper horizontal black line) with medium term support continuing to firm here:

Gold remains the biggest loser and almost crossed below the $1800USD per ounce level overnight, before finding some support to finish just above the $1840 zone nevertheless with a new daily low. This is not looking good for the shiny metal, but those long tails in recent days do support some short term support at least, so watch for any price action that firms here:

 

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)

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!

Latest posts by Chris Becker (see all)

Comments

  1. thanks Chris, this was good wrap. my 2c and 1 question for you..
    Gold may fall further as rates push closer to or pass 1.2%. Looking at US markets now it seems 10Y will never see 2% and FED will be forced to act well before that. Now even 1.2% may be bridge to far for 10Y and if that is the case then gold may fall to $1700 max.
    Once FED start pushing the curve gold will be back above $2k and will continue its run towards $3k by Christmas 2021. This starts to form as my main case now.
    Any view on Oil? Everyone says it’s cheap and I agree with their arguments but I see serious risks for Oil as, in my view, EVs will take off much faster than most people tend to think while covid19 will continue to suppress demand for oil short term. I doubt oil will get higher than $65 and this is best case scenario unless vaccines start to make difference.

    • Green tech is far more capital and labour-intensive to produce than FFs.

      https://oilprice.com/Alternative-Energy/Renewable-Energy/Who-Will-Foot-The-40-Trillion-Energy-Transition-Bill.html
      “In fact, green infrastructure is 1.5-3.0x more capital- and labor-intensive than hydrocarbons.”

      Not only that, but the amount of mining (think FFs) required to access these resources will actually hasten GW:-

      https://www.nytimes.com/2019/12/09/business/paul-a-volcker-dead.html

      “This is a complex issue. After 50 years of doing nothing, the fear of GW has suddenly become so pressing that everyone is jumping on the solar/renewables bandwagon without knowing a great deal about it.”-

      An op-ed in the Wall Street Journal of a report “If You Want ‘Renewable Energy,’ Get Ready to Dig” (Mark Mills) points out the physical impossibility of renewable energy (mainly wind and solar power) and battery storage transitioning the world to a “new energy economy”. The transition would require “the biggest expansion in mining the world has seen and would produce huge quantities of waste. Wind turbines, solar panels, and storage batteries are made from nonrenewable materials that wear out and must be decommissioned, generating millions of tons of waste.

      For example, to meet the Paris accord benchmarks, the solar power required by 2050 would result in the disposal of solar panels equivalent to over double the tonnage of the world’s current plastic waste.

      “Building one wind turbine requires 900 tons of steel, 2,500 tons of concrete, and 45 tons of non-recyclable plastic and solar power requires even more cement, steel, glass, and other metals—notably rare earth minerals. Global demand for rare-earth minerals would need to increase by between 300 percent and 1,000 percent by 2050 to meet the Paris renewable goals.”

      https://damnthematrix.wordpress.com/2020/11/15/the-physical-impossibility-of-renewable-energy-meeting-the-paris-accord-goals/

      To paraphrase Clinton – It’s not the economy stupid, but FFs. Oil in particular enabled civilisation for 200 years. Not the economy.

      Oil, both conventional and unconventional, have peaked (traditional fields in 2006 and though it’s too early to tell yet, unconventionals in 2018). So we simply don’t have the resources on any front to move to so-called ‘renewables”. Neither do we have the FFs to maintain GDP growth. The world is teetering on a catastrophe of de-growth denial. So yep, oil the oil prices should rise, unless the economy collapses……

      https://damnthematrix.files.wordpress.com/2021/01/135319698_10224326002766468_185778494342397436_n.jpg

      • Solar panels, wind turbines, etc, tend to pay themselves off in both economic and emission terms fairly quickly.

        Renewables are still on a massive technology curve – I think the references you’ve provided are too backwards looking. For example, a number of the renewables techs already have upcoming techs that use cheaper, more common materials to substitute for more expensive materials.

        Renewables will be fine. Even Rare Earths aren’t rare.

    • Agreed that EVs will take off more quickly – I think it is now in many advanced economies, except Australia – but even we will fold, and it probably won’t be long…

      re: bonds: I can’t see central banks letting rates creep up anytime soon – won’t they just print and buy for the next couple of years, to keep rates down?

      I’m skeptical of gold for 2021, and am considering reducing my gold miner holdings (all in loss territory at the moment), as I consider other options. Sure, countries are printing (gold positive), but economies are also going to recover post-Covid (risk on, gold negative). Seems, therefore, that gold might just keep going sideways (in some fashion) for a while…so, why would I hold much / any gold?

      I laugh at myself regarding how far I’ve come from my gold bug days.

      • “re: bonds: I can’t see central banks letting rates creep up anytime soon – won’t they just print and buy for the next couple of years, to keep rates down?” yes, as per my comment. more color down..

        This is trade of the century in my opinion which can be horribly wrong but this is where my money will be going. Hear me out..
        First, I agree with your view – banks will print to supress the rates. See my second paragraph. My view rates will probably raise to about 1.2-1.3% and may even push to 1.5% but I doubt they can go that far before markets start tanking really sharp and FED reacts really big. In the meantime gold will fall further down to $1750, $1700 or thereabouts.
        This is why I sold most of my positions and only kept few NCM and ALK in case I was wrong. I started buying NCM yesterday 250 each and now have multiple bids below $26 so I can accumulate larger stake while gold prices shows weakness due to raising rates. I keep an eye on 10Y rates as good indicator.
        Once FED starts pressing rates down, my view is gold will start to raise and this is when nothing will stop it all the way to $3k. It will be fast as inflation will be very visible while rates will be suppressed and people will be buying high end real estate, gold and BTC.
        And if I am wrong I will be leaking my wounds for very long time.