A seismic shift in risk markets overnight with the US Federal Reserve moving its so-called dot plot into the affirmative for more rate hikes, sooner than expected. This spooked Wall Street and saw the USD soar against all the major currencies, plus wiping out gold prices. Bond markets saw a big increase overall in yields as recent low volatility begetted higher volalitity with the 10 year Treasury almost up to 1.6% while commodities were again quite mixed and relatively steady, except USD sensitive precious metals.
This is likely to result in a reset in equity markets here locally although the much lower Australian dollar will cushion some of the falls. Interesting times ahead!
Bitcoin is falling back from the $40K level after failing to get unstuck with a mild correction down to the $38K level this morning and almost back to last week’s prior resistance level. As I mentioned yesterday, watching that low moving average here on the four hourly chart for signs of an inversion is paying off with momentum readings going negative:
Looking at share markets in Asia from yesterday’s session, where the Shanghai Composite remains on the decline, falling over 1% to close at 3518 points, while the Hang Seng Index is following suit, down 0.7% at 28436 points as it cracks through daily support. Price action is showing a wider breakdown is possible here as support at the 28500 point area is taken out with the previous monthly lows at the 27700 point level the target here:
Japanese stocks pulled back unexpectedly with the Nikkei 225 closing 0.5% lower at 29291 points. Daily futures are retracing slightly as the big surge in USD against Yen will keep providing a tailwind, but a continuation of this breakout above 29000 points could be thwarted as the modest upside target at the 29500 or even 30000 point level maybe too far away as we go into a wider risk off mood:
Australian traders were in a wait and see mode with the ASX200 closing only 0.1% higher at 7386 points. SPI futures are relatively flat and like Japanese stocks, a much much lower Australian dollar is likely to give some support here following the falls on Wall Street overnight. However, the daily chart is still showing a lot of overbought momentum readings, and while price continues to be well supported since the breakout above 7000 points, this could turn into a wider dip as all correlated risk assets fall:
European markets were mixed to flat overnight, lying in wait for the FOMC meeting with the German DAX losing a little bit of ground to finish 0.1% lower at 15729 points. The daily chart remains nominally positive, but I’ve been wary of momentum readings for quite sometime now as acceleration is still quite anemic despite a much lower Euro. Watch the low moving average for signs of a breakdown:
Wall Street didn’t just hit the brakes it threw out the anchors with all three bourses falling back on the FOMC meeting, although notably the NASDAQ only lost 0.2% or so while the broader S&P500 plunged over 1% before settling 0.5% lower at 4223 points. Price action on the four hourly chart had shown hesitation and resistance building at the 4250 point level with a proper break below trailing ATR support at the 4220 level. It remains to be seen if this will be followed through to more robust daily support:
Currency markets were flummoxed, with the FOMC announcement sending USD to the moon as Euro finished over one handle lower at just below the 1.20 level in a severe drop. As I stated yesterday this tiny bounce at the start of the week maybe over before it started as the real trend – an immensely stronger USD – reveals itself:
The USDJPY pair got a big hit in kind, pushing up through the 110 handle and then some to a new weekly and monthly high, matching the March highs. The longer term charts have been suggesting such a return for quite sometime now but it did take the FOMC meeting to kick it into overdrive. Wait and see mode for a follow through here:
The Australian dollar was hit hard by the Fed’s resolve to raise rates with a big dump overnight, sending it right to the 76 handle. This has been coming for some time with resistance at the 77.70 level and the dominant downtrend just too hard to clear with a return to the March lows setting up a huge bearish head and shoulders pattern that will have more downside:
Oil prices took the Fed meeting in stride with only a minor pullback with Brent crude finishing slightly below the $74USD per barrel level overnight. This does look toppy but the potential for a run up to the 2018 high at $83 or so continues to build here with the low moving average never under threat, but watch momentum readings going into extreme overbought stage:
Gold was hit hard alongside other undollar assets, falling down to the $1800USD per ounce level proper before settling here this morning at the $1811 level. The writing was on the wall with subsequent closes below the low moving average and the touching of ATR support presaging more downside below, the question is how far will this fall now that the Fed has rate hikes in sight? $1700? $1500?
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!