Macro Morning

See the latest Australian dollar analysis here:

Australian dollar free falls as Fed hikes return

Another COVID correction is brewing on risk markets with dead cat bounces on Wall Street falling over due to Fed Chair Powell’s comments on fast tracking the taper despite short term concerns over the Omicron variant. European shares joined in on the selling again, while bond markets jumped around especially on the short end but also big moves in the 10 year Treasury yield which pulled back below the 1.5% level. Currency markets were equally volatile with a lot of movement around USD, eventually seeing Yen and Euro lose ground while the Australian dollar briefly broke below the 71 cent level. But wait there’s more volatility with oil prices losing more than 4% while all the other industrial metals lost ground as gold broke its daily support level after rejecting resistance at the $1800USD per ounce level.

Bitcoin remains in a tenuous slight downtrend despite a big gap higher at the start of the week, again deflating to a new low below the $58K level overnight.  The four hourly and daily charts still look bearish as daily resistance at the $59K level has not yet been cleared, although short term support is still firm at $56K:

Looking at share markets in Asia from yesterday’s session, where nerves were still rattled as Chinese shares were mixed once more with the Shanghai Composite barely up, closing at 3563 points while the Hang Seng Index is in a major slump, down more than 2% at one stage, crossing major support levels before finishing nearly at a new yearly low at 23475 points. I warned yesterday of a large potential for a follow through as the daily chart broadcasting ominous tones throughout as price was pushed own and then below September lows, breaking all levels of internal buying support. I’m still nervous about a violent swing to the upside here on any positive news with momentum extremely oversold and the tail long yesterday:

Japanese markets tried to stabilise but couldn’t catch a bid in the wake of a stronger Yen with the Nikkei 225 closing 1.6% lower at 27821 points. Futures are indicating further falls on the open, not helped by a higher Yen as yet another headwind as price scoots along the September support levels just above 27000 points. Momentum is now very oversold, setting up for further downside:

Australian stocks had a mild session with the ASX200 eventually closing 0.2% higher at 7255 points. SPI futures are suggesting a drop on the open given the overnight volatility on Wall Street and European markets. ATR trailing daily support has been taken out and a rollover to the next level of monthly support at 7100 points is possible if a new daily high is not made soon:

European markets had the most volatile night of all, proving this correction is not yet over with around 1% losses across the board, with the German DAX finishing 1.2% lower at 15100 points, but it looks worst intrasession with the 15000 point level broken. The daily chart is still not showing any evidence of substantial buying support although later in the session, price managed to lift back to the September lows. This COVID catalyst correction still has the potential to swing wildly higher on any positive news as daily momentum gets extremely oversold:

Wall Street had a worse follow through with the NASDAQ taking back its recent gains, falling over 1.5% while the S&P500 lost nearly 2% to finish at 4567 points. The four hourly chart shows price action failing to close a second time above the high moving average, nor trailing ATR resistance at the 4670 level, a clear sign this swing higher was a dead cat bounce, and has made a new session/daily low in the process. This has the power to extend further south if the BTFD crowd does not step in and make a repeat of February last year:

Currency market volatility came back in spades as algos pushed around pairs on Powell’s postulations about inflation, with Euro in a very wide range against USD before settling at just above the  1.13 handle. The four hourly chart remains nominally bullish with positive momentum building and a direction forming if you look through the intrasession volatility, and while the overall downtrend is still in play, there is growing potential of a follow through here above the previous weekly high at the 1.1370 level:

The USDJPY pair is almost the opposite here, with another wide ranging mid-session before a continued run to safety via Yen buying as price eventually settled just above the 113 level, but again looking fragile as of this morning. Price action is definitely moving lower here with the four hourly moving average band pointing down and momentum nominally oversold, withe more downside possible on further risk off moves:

The Australian dollar still kept on keeping selling overnight despite the Powell wobble midstream, with a new session low made in the process, falling below the 71 handle before jumping up slightly above this morning. Today’s GDP print could prove another catalyst lower with short and medium term momentum still oversold, and commodity prices showing no signs of recovering:

Oil rallied at first again across both Brent and WTI crude futures, but this was quickly shutdown with some big moves lower before Brent finally finished 4% lower right on the $70USD level. Volatility is very higher with the bounceback over before it started as the former monthly resistance level at $77 proves too strong alongside very negative momentum:

Gold was the biggest casualty, falling back to its recent lows and then smashed through nascent support at the $1780USD per ounce level, making a new daily and weekly low due mainly to Powell’s comments overnight.  The early signs of a rollover were there before this move as I mentioned yesterday, with momentum now switching to oversold in the short term and setting up for more downside below:



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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