Macro Morning

See the latest Australian dollar analysis here:

Macro Afternoon

Friday night showed that the fallout from the US inflation print has been largely contained on risk markets with Wall Street rebounding to almost get back to its record highs while bond markets were contained as volatility reduced again after spiking mid week. The USD actually closed lower against most of the majors, particularly the Australian dollar while gold kept advancing well beyond the $1850USD per ounce level as the gold bugs get excited about inflation. Commodity markets were mixed though with oil futures falling back nearly 1%, copper still lifting and up 1% while iron ore took a dive and lost nearly 5% to end the week on a sour note.

Bitcoin was unable to return to its previous record high, continuing its consolidation below the $65K level, which helps to take out more heat out of the recent breakout that sped away too far too fast. Daily momentum readings have reverted below nominal overbought levels, so watch that low moving average on the daily chart that must firm as short term support:

Looking at share markets in Asia from Friday’s session, where mainland Chinese shares were largely unchanged with the Shanghai Composite finishing just 0.2% higher to close at 3539 points while the Hang Seng Index did a little better it tried to hold on to its previous gains just above the 25000 point level, lifting 0.3% to 25327 points. Price action reversed in the previous session and Friday’s effort to keep going was not too bad all things considered, keeping price above the high moving average ready to turn this swing into something more promising after several weeks of a downtrend. As usual however don’t mistake this for a new trend until major levels of resistance are cleared:

Japanese markets loved the much lower Yen, with the Nikkei 225 closing more than 1% higher at 29609 points. Futures are indicating more upside here as daily momentum remains positive after its overbought retracement but again this market is bunching up at resistance overhead at 30000 points which could prove too hard a target to breach:

Australian stocks also put in a strong finish with the ASX200 closing 0.8% higher at 7443 points.  SPI futures are relatively flat indicating no real direction on the open this morning as we start a new trading week. The return to the former August highs is still on the cards in the medium term, with long tails of buying support evident on the daily charts, with short term momentum possibly indicating more upside using the 7400 point level as an uncle point:

European markets were quite mixed following a series of bullish sessions, with the FTSE pulling back all of its previous gains while the German DAX managed another meager finish, lifting only 0.1% to close the week out at 16094 points, again only barely building above the 16000 point level. The daily chart looks nominally bullish and while support is very firm, caution continues to manifest here as the level of progress is dwindling and even a sharply lower Euro is not providing any upside catalyst:

Wall Street however was green across the board with the NASDAQ up a solid 1% while the S&P500 surged over 0.7% to almost get back to its previous high, closing the week at 4682 points. The daily chart shows this return to form after only a mild dip as the market got ahead of itself in its October surge rally. A follow through on negativity around the inflation print has not occurred with a clear signal here to keep buying even as the Fed takes away the punchbowl:

Currency market volatility continued to ease off with the fallout from the US inflation print now largely contained within lower Euro and Pound Sterling price levels. The former was basically unchanged on Friday night after making a monthly low, finishing just below the mid 1.14 level. Momentum was extremely oversold and is now reverting so we could see a minor lift on a relief short term trade to start the week, something evident in other risk currencies already:

The USDJPY pair couldn’t make another breakout stick after steadying around the 114 handle overnight, retracing all of it and then some to finish below that level and indeed the set of previous weekly intrasession highs. Momentum has now reverted from nicely overbought to broadly positive and while price is supported at the 113.70 level the inability to punch through those weekly highs will weigh on the pair going forward:

The Australian dollar was under enormous pressure throughout the week with the double whammy of lower iron ore prices and the US inflation print sending it to new monthly lows, but Friday showed some relief with a brief rally back above the 73 handle. This was just a reaction to the oversold nature and could be seen in the price deceleration beforehand, however it may not stick as iron ore goes lower again with resistance overhead quite strong:

WTI and Brent crude futures were unable to gain traction once more following the false breakout mid week with Brent retracing back below the $82USD per barrel level. The previous move off daily ATR support had crossed above the high moving average on the daily chart but momentum was not behind it with a series of lower highs not yet broken, with price action suggesting more sideways before upwards:

Gold continues its zoom higher following the US inflation print, pushing right through the $1860USD per ounce level after easily exceeding the previous highs from late August. Price action is obviously well overdone, with momentum readings nearly off the chart, but it confirms the new uptrend and sparks the potential to return to the May highs at $1900USD per ounce, but watch for a short term reversion going into the end of the trading week:



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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