Macro Morning

See the latest Australian dollar analysis here:

Australian dollar parties as assets melt-up

The real action on overnight markets is not Gamestop shares or Bitcoin, but the international bond market, which spiked yet again as a weak Treasury auction overshadowed solid US economic news. Yields increased dramatically across the curve, with the bond selloff spilling over to Wall Street with 2-3% falls as shaky confidence previously soothed by the Fed disappeared. It’s going to be a fiery end to the trading week here in Asia.

Bitcoin volatility has abated somewhat with a small drop overnight within its trading range to the $48K level after failing to breakout above $51K. The four hourly chart is setting up for more downside action here, watch for a break of the recent session lows and a return to the $45K level:

Looking at share markets in Asia from yesterday’s session where the Shanghai Composite closed 0.6% higher at 3585 points while the Hang Seng Index has bounced back, closing 1.2% higher and back above 30000 points. Futures however are pointing to a big selloff today, commensurate with the classic blowoff topping action on the daily chart. As I said yesterday, if price action remains anchored at the 30000 point level then its out of the woods, but a break below could see it swiftly return to the late January lows at 28000 points:

Japanese markets saw a similar bid, with the Nikkei 225 taking back its previous losses to finish 1.6% higher at 30168 points. Futures are also pointing to a big selloff today in response to Wall Street’s slump so despite most of the heat having been taken out of this market, a further correction down to trailing ATR daily support at 29000 point is now possible:

The ASX200 was also able to clawback most of its previous losses, finishing 0.8% higher at 6834 points. SPI futures are down nearly 100 points or at least 1.5% lower, and a much lower Aussie dollar overnight is not going to help much here as co-ordinated fear leads to more selling as medium term resistance overhead at 6900 points remains too strong:

European markets were initially bid well across the continent as risk appetites returned but this soon lost its shine as the German DAX moved 0.7% lower to 13879 points before then losing more ground in futures as Wall Street slumped.  Price has failed yet again to breakout above the former highs (solid black upper horizontal line on the daily chart below) and now we’re setting up for another decline possibly as lows at the late January dip, so watch for momentum to invert on the daily chart:

Wall Street really wanted to wave away the chaos in bond markets but was unable to rely on the BTFD Squad this time with the headline Dow 30 off by nearly 2% while the NASDAQ lost 3.5% and the broader S&P500 slumped more than 2% in a big reversal. The four hourly chart shows this quite clearly with a rapid return to the mid week lows and a failed breakout despite the help from  the Fed to get the market out of the danger zone:

Currency markets couldn’t escape the volatility either as the GDP print and US jobless claims numbers added to the bond market oscillation with the Euro spiking up through the 1.22 handle before smashed back down to its recent session highs at the 1.2170 level. This sets up for more USD strength ahead so watch for a return to the session lows at the 1.2130 level:

The USDJPY pair however was relatively stable and was able to put on some more returns overnight pushing through and sticking above the 106 handle and the previous weekly high. This hasn’t turned into a failed break move higher as momentum gets nicely overbought, but watch for short term support at the 105.80 level to come under pressure:

The Australian dollar was going great guns all week and briefly touched the magical 80 cent handle overnight before getting flummoxed and losing over 120 pips as a result of the bond market volatitily. This is a big reversal and may have more repercussions ahead, but again watch commodity prices for any signs of a sustained pullback:

Oil prices were relatively stable however, with Brent crude slipping just below the $66USD per barrel level overnight.  This still sets up a revisit of the upside target at the $70USD per barrel at the 2019 highs, with almost no short positions left in its way, as momentum remains nicely positive:

Gold is really struggling to find some stability here as it was pushed again well below the key $1800USD per ounce level, after failing all week o make a new daily high after recently bottoming out at the November low at $1775USD per ounce. Momentum is considerably oversold but the chances of a swing higher are fading as the real trend reveals itself:

 

 

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!

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Comments

  1. The problem with these bond prices is coupons haven’t shifted and don’t look like doing so, so only traders are interested……the action is shifting to Eurodollar markets as people are starting to believe interest rates must rise for foreigners to buy US Treasuries going forward. Of course coupons could increase without FFR rising but that would be an admission of a real problem……confidence is the key.

    https://twitter.com/EddBolingbroke/status/1364980886912065536

  2. Quarantine Madness

    February 15, 2021 at 1:50 am
    I’ve just gone 20% in a leveraged inverse ETF for long term US treasuries.”

    Timing’s everything as they say.

    If we see critical levels of support broken tonight it could get ugly quickly and I’ll be selling my trades and investments A lot of these tech stocks could drop 90% and still be overvalued.