Macro Morning

See the latest Australian dollar analysis here:

Macro Afternoon

The big news overnight was the obviously not-transitory US inflation print, up more than 6% annualised, the biggest move in over 30 years which sent Wall Street down sharply and the USD flying against all the majors save gold, which hit the $1850USD per ounce level. Euro almost hit a two year low while the Australian dollar plunged back to the 73 cent level. Bond yields rose across the board with rate hike expectations brought forward to August 2022, as the writing is on the wall. Commodity markets were largely bearish with oil down more than 2%, copper off more than 1% while iron ore fell over 3% to crack the $90 per ton level for an 18-month low.

After making a new record high, Bitcoin has consolidated below the $65K level taking some heat out of the breakout. This breakout maybe a stretch too far with momentum readings reverting but watch that low moving average on the daily chart as short term support:

Looking at share markets in Asia from yesterday’s session, where mainland Chinese shares were falling fast going into the afternoon session with the Shanghai Composite down over 1% before recovering for only a 0.4% loss, closing at 3492 points while the Hang Seng Index was following along, but then zoomed higher with a lot of late buyers to actually close 0.6% higher at 24996 points. Price action continues to show a return to the dominant downtrend, but with some deceleration noted, not yet closing below nominal ATR support at the 24500 point zone, even though daily momentum is properly negative. We may see support build more at the 25000 point level first:

Japanese markets had their own troubles, with the Nikkei 225 closing 0.6% lower at 29106 points, falling below its own low moving average on the daily chart. Futures are indicating a drop below the 29000 point level on the open this morning as overbought momentum retraces and returns the market to pre-election levels, with resistance overhead at 30000 points proves too hard a target to breach:

Australian stocks were the relative best with swings and roundabouts sending the ASX200 down only 0.1% to close at 7423 points.  SPI futures are off by about 10 points or so despite the larger pullback on Wall Street overnight, buoyed by the big drop in Aussie dollar, so while a return to the former August highs is still on the cards in the medium term, short term momentum indicates another pause here at the 7400 point level:

European markets had a much better result overnight, at least before the end of US trading with green across the board as Euro collapsed in the wake of the US inflation print. The FTSE gained 0.9% while the German DAX put on 0.2% to finish at 16067 points, only barely building above the 16000 point level. Indeed, the daily futures chart is showing a retracement back to that level following the falls on Wall Street with daily momentum about to retrace from its overbought status – caution reigns here:

Wall Street however had its first bad session in quite some time in response to the “surprising” inflation print, with the NASDAQ finishing 1.6% lower while the S&P500 lost 0.8% to close at the 4646 points level. I noted yesterday that we needed a violent retracement below trailing ATR support the 4650 point level before calling this rally over, and we’re halfway there with another close sealing the deal for a dip at least:

Currency market volatility was the greatest across all trading markets overnight in the wake of the US inflation print with the USD soaring against almost everything. The US Dollar Index finished 0.7% higher with Euro slammed over 100 pips to below the 1.15 handle for a new monthly (and then some) low. As I noted yesterday, the medium term direction remained a downtrend, so anyone positioned with a longer term view could see the writing on the wall here. Momentum is now extremely oversold but we could see more downside in the sessions ahead:

The USDJPY pair however got sharply out of breakdown mode to swing violently higher, almost hitting the 114 handle as a result of the inflation print. Short and medium term momentum was very oversold so the potential for a short term swing play higher was always there, but this could be short lived as medium term resistance at the 114.30 level is strong:

The Australian dollar was already under pressure coming into the inflation print and managed a significant decline in the wake of it, falling down towards the 73 handle. However it could come under even more pressure today as the iron ore selloff gathers pace, and the nearly useless unemployment print this morning may trigger more selling:

WTI and Brent crude futures were able to lift strongly again overnight with a 1% higher finish for Brent to almost close above the $85USD per barrel level as this bounce continues. This solid move off daily ATR support has now crossed above the high moving average on the daily chart and sets up for a return to the recent highs nearer the $86 level:

Gold zoomed higher on the US inflation print, boosting its advance above the $1800USD per ounce level to push it through the $1850 level that now easily exceeds the previous highs from late August. While this short term price action is obviously overdone, with momentum readings nearly off the chart, it confirms the new uptrend and sparks the potential to return to the May highs at $1900USD per ounce:



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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