Macro Morning

See the latest Australian dollar analysis here:

Macro Afternoon

The New Year party was spoiled by the release of the Fed minutes overnight, indicating a much more hawkish bent as we head into the taper and “normalisation” of interest rates in 2022. This caused tech stocks to fall sharply, dragging down industrials on Wall Street and pushing 10 year Treasury yields higher to almost 1.7 % as risk currencies fell out of bed. This included gold which fell back sharply but remained above the key $1800USD per ounce level while oil prices remained on an upward path due to OPEC+ certainty with a near 1% rise across the complex.

Bitcoin is nearing full breakdown mode as its recent deflation now takes it below the previous daily lows at the $46K level, starting the new year in a pitiful way. There’s daylight below to the next support levels at $30K, but there is some minor support at the September 2021 lows at $40K that may hold:

Looking at share markets in Asia where mainland Chinese shares were down significantly with the Shanghai Composite off by more than 1% to close at 3595 points while the Hang Seng Index went even further after hovering at the 23000 point level to close 1.6% lower at 22907 points. Price has been anchored at the 23000 point level where multi-month support lived previously, but its teetering on breaking through the 2020 lows (lower black line) which has the potential to start a new bear market if it doesn’t get back above the high moving average line very soon:

Japanese markets put in scratch sessions with the Nikkei 225 closing a few points higher at the 29332 point level. Price action is pushing through overhead resistance at the 29000 point level with momentum picking up strongly but despite a much weaker, correlation with other risk markets will likely see a pullback here below the 29000 point level as this nascent uptrend stalls out before getting back to the 30000 point level:

Australian stocks had a minor pullback after a big start to the trading week previously, with the ASX200 closing 0.3% lower at 7565 points. SPI futures are down 0.3% or so given the larger falls on Wall Street overnight but this is likely to extend further as the previous price action looks like a false breakout if the 7500 point level is not defended adequately:

European shares continued their own little rally with the German DAX closing 0.7% higher to extend its move above the 16000 point level, closing at 16271 points, but it pulled most of this back in futures due to the later falls on Wall Street. Price action has almost matched the previous highs but the recent daily candle shows signs of an inability to punch through despite some strong and highly overbought momentum ready, so watch for a reversion trade here if Wall Street continues to fall out bed with price likely to fall below the high moving average:

Tech stocks are ruining the party on Wall Street with the previous session setting up for last nights falls with the NASDAQ closing nearly 3% lower, dragging the S&P500 down with it, off by 1.5% to close at 4723 points. The four hourly chart shows this breakdown quite clearly with a failure to re-engage to the upside and push through the 4800 point level, with the bottom end of the rectangle pattern smashed through. Notably this only takes it back to the Xmas level from a few weeks ago, not far relatively speaking, but momentum is not behind Wall Street following the Fed’s hawkish stance:

Currency markets reflected a strong USD post the Fed minutes release with large moves against the major currencies overnight as Euro was pushed sharply lower straight back to the 1.13 handle. The union currency looks like retreating back to the lower edge of the bearish rising flag pattern that’s quite evident on the daily chart with the four hourly chart below shows a potential follow through to the start of week levels around 1.1270 before the NFP print on Friday:

The USDJPY pair got way ahead of itself after pushing through the 116 handle to a new five year high that was extremely overextended and inevitably created a post reversion pullback to the high 115’s. However last night it bounced back following the Fed minutes to get back above the 116 level, not quite matching the previous highs but setting up for another leg higher:

The Australian dollar had its comeback cut short very quickly with a sharp retracement back to the 72 handle overnight, taking it back to the point of control for the last two weeks. As I said yesterday, the previous upswing had all the hallmarks of a short term swing trade only, with the potential to peter out around trailing ATR resistance at the mid 72 level and here we are. The steady moves in commodity prices especially iron ore should provide more support here but I’m concerned going into tomorrows NFP print – if it proves very strong as predicted – could provide another catalyst to send it lower:

Oil price volatility is reducing slightly as trades seem to embrace the certainty around the OPEC+ decisions with Brent crude lifting nearly 1% to close above the $80USD level overnight. After clearing its previous weekly highs the daily chart is showing a breakout building here that has the potential to get things moving back to the $85 level very quickly, as daily momentum moves into positive territory, but is it enough to weigh against COVID demand concerns in Europe?

Gold was back on track after a surprising fall from the $1830USD per ounce level post Xmas, but it failed to make a new daily high and then was smacked down by a hawkish Fed ready to taper and raise rates quicker than expected to tackle inflation. This saw the shiny metal pushed well below the overhead trailing ATR resistance at the $1820 level as the lack of truly overbought momentum showd this move to not be fully supported with a fall back to the lower edge of the trend channel. There’s still hope here if the $1800 level is defended with more buyers:

 

 

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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