Macro Morning

See the latest Australian dollar analysis here:

Australian dollar free falls as Fed hikes return

Risk markets lost their nerve on Friday night in the wake of the Omicron breakout across the world, the new COVID variant proving too much especially for European shares which fell over 4% while Wall Street lost more than 2% in thin trade due to the Thanksgiving holiday. Currency markets were volatile with Euro spiking after being oversold for so long, while the Australian dollar kept falling to almost cross below the 71 cent level as commodities fell extremely sharply. Oil lost over 11%, copper down 4% while iron ore lost nearly 5%, while gold continued to struggle and remained well below the $1800USD per ounce level.

Bitcoin finished at a new weekly and monthly low, not escaping the volatility, starting just above the $54K level this morning. The daily chart looks quite bearish with a double top pattern, a wipeout of daily support at the $59K level combined with nicely oversold momentum and bearish engulfing candle from Friday suggesting more downside below:

Looking at share markets in Asia from Friday’s session, where Chinese shares sold off everywhere with the Shanghai Composite down more than 0.5% lower at 3564 points while the Hang Seng Index finished more than 2.6% lower to almost cross below the 24000 point level. Futures look real bad to say the least, equating to the September lows which spells ominous for future downside as all levels of internal buying support are broken:

Japanese markets did just as bad, with the Nikkei 225 closing down 2.5% lower at 28751 points. Futures are indicating even more downside on the open, catching up to European concerns with the much lower USDJPY pair – losing 200 pips on Friday night – also providing a massive headwind as markets reopen this wee:

Australian stocks couldn’t escape the carnage either with the ASX200 closing off more than 1.7% lower to finish the week at 7279 points. SPI futures are down more than 1% in response to the shellacking on Friday night markets, with a drawdown to the 7100 point level likely on the open. Buying support had been robust leading up to this decline but with support at the 7320 point support level taken out, the next level of monthly support is very close at hand:

European markets were the worst affected (infected?) on Friday night as news of the Omicron variant spreading to the continent caused a lot of fear and panic. Almost all markets lost around 4% or more, with the German DAX wiping out all of its advance since early October to finish 4.1% lower at 15257 points. This had been presaged by a series of lower lows as the DAX had been closing below its own low moving average on the daily chart with not much evidence of substantial support. This new leg down on the COVID catalyst has the potential to swing wildly higher on any positive news, given the epic volatility:

Wall Street had a similar response but lacked the same magnitude with thinner trading due to the Thanksgiving holiday helping out somewhat. Nevertheless, all three markets fell sharply with the S&P500 falling more than 2% to finish at 4594 points. The daily chart shows price action has swiftly wiped out the current consolidation period since late October, crossing below ATR support that now sets for more potential downside. One day of price action does not a new trend make, but this is looking ominous:

Currency market volatility reflected the European fears of Omicron, with Euro shooting higher against USD after stabilizing somewhat at the 1.12 handle in the previous session, finishing the week with a new weekly high after being in a downtrend for so long. This maybe overdone in the short term but this run to safety may have legs (sic) to get back to the 1.14 handle in the wake of the new COVID scare:

The USDJPY pair was smashed on the run to safety as well, completely wiping out all the recent gains and then some as it barreled in on the 113 level, losing 200 pips! This is an amazing move after recently making a new five year high above the 115 handle and shows how fragile sentiment can become. Momentum is extremely oversold in the short term and is likely to prove volatile in the sessions ahead with no real discernable level of support visible here:

The Australian dollar just accelerated on its great downtrend as it extended its push well below the 72 handle and almost crossed below the 71 cent level on Friday night. As a risk proxy, this is the danger with the Pacific Peso as the sudden selloff in commodity prices hasn’t been able to mitigate the minor reversal in USD strength. Short and medium term momentum remains quite oversold:

Oil couldn’t escape the carnage with massive selling evident across both Brent and WTI crude futures, the former pushed down nearly $10USD per barrel to just below the $72USD level on Friday night. This sort of epic volatility is not unknown for oil markets due to one off events but does setup the potential for an equally volatile bounceback, even though this move has taken out literally months of uptrend in one swift stroke. The former monthly resistance level at $77 is the area to watch ahead for a probable swing higher on any positive news:

Gold suffered a dead cat bounce with its nascent breakout back to the key $1800USD per ounce level thwarted, slapped down to the recent intrasession lows before stabilising somewhat at the $1792 level. This breakout was looking good, at least for a short term swing play, but the overall market reaction to the new COVID variant has put gold back in its place. Momentum remains negative in the short term but support at the $1790 level needs careful watching here for signs of another rollover:

 

 

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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