The latest US inflation print surprised again to the upside, a 40 year high of over 7% annualised, causing the USD to jump against everything while Wall Street lost its nerve, sending shares down 2% or so. This will lead to an inversion in risk taking in the last session of the trading week locally here, despite lower domestic currencies. The bond market saw some big levels taken out with the 10 year Treasury yield pushed above the 2% level with interest rate futures pricing in at least a 50 bps rise by the Fed next month. Gold had a wobbly but eventually finished just below the $1830USD per ounce level while commodity markets saw mild rises on the back of the stronger USD with oil up slightly while iron ore surged once again.
Bitcoin tried to breakout above the $45K level again last night but was pulled back by a wave of volatility across actual currency markets. This consolidation above the $44K level is quite firm and points to more upside ahead with four hourly and daily momentum still quite positive. Watch for another attempt above $45K going into the weekend:
Looking at share markets in Asia from yesterday’s session, where mainland Chinese shares were looking a little shaky with a mid session slump that was filled going into the close with the Shanghai Composite largely unchanged at 3487 points while the Hang Seng Index also getting a leg on into the close, eventually finishing 0.4% higher at 24924 points. Price action remains poised here after filling in the decline of the previous two weeks, with the daily chart showing it getting back on track to the 25000 point level reached in mid January as momentum gets nicely overbought. But is this another bearish pattern – a double top – forming again?
Japanese stock markets were solid across the board with the Nikkei 225 lifting 0.4% higher to 27696 points. Futures however are suggesting a complete pullback and then further downside to finish the week in a very soft manner given the falls on Wall Street. The daily chart was slowly turning this swing play into something more substantial in the short term but that considerable resistance overhead at the 28000 point level remains too far for now as this looks like forming a bull trap:
Australian stocks had a decent session with the ASX200 finishing just 0.3% higher at 7288 points. SPI futures are also not looking good, down at least 0.8% due to the slump on Wall Street overnight with overbought price action looking to pull back down to the previous weekly/monthly support levels. I warned yesterday that daily momentum was not yet positive with signs of an overdone move so this retracement could go further going into the end of the trading week:
European shares had mixed results across the continent with the FTSE the best winner, up 0.4% while the Eurostoxx 50 index eventually finished down 0.2% at 4197 points before dropping another 0.5% or so in post-close futures as Wall Street slumped in the wake of the inflation print. Euro is not providing additional support here in the short term as price action is still contained below trailing overhead resistance at the 4250 point level with momentum unable to get out of negative/neutral mode:
Wall Street hated the “surprise” inflation print with losses across the board – the NASDAQ down more than 2% while the S&P500 lost 1.8% to close at 4504 points. The four hourly chart shows price having moved back to the previous weekly high but taking that all back and then back down to the previous bottoming pattern with support at the 4450 level. This level – or around the previous highs at the 4440 level (mid black horizontal line) must hold tonight:
Currency markets had a volatile night as all bowed to the King – USD. The inflation print set the cat amongst the pigeons with all the majors oscillating against USD with Euro at first looking to breakout above the 1.15 handle and then pulled back in line to finish almost unchanged for not just the session but the whole trading week.The 1.15 level is obviously firming as resistance in both the short and medium term before we get to the Fed’s meeting in March. Watch trailing ATR support to come under threat here soon:
The USDJPY pair tried to run higher, breaching the 116 handle as it pushed aside weekly resistance levels. Momentum is extremely overbought on the four hourly chart with recent price action n the candles looking toppy at best, imminent retracement at worst. This is nominally good for risk assets but the correlation with domestic Japanese stocks at least is still broken, so watch for a potential pullback to the low moving average/ATR trailing support at the mid 115 before this potentially running away:
The Australian dollar had the worst volatility, spiking through the 72 handle before the CPI release before slammed back down to where it started yesterday at the mid 71 level, still holding on to its three week high. The conversion of a classic swing play into an outright new trend is looking wobbly as a result so watch for ATR support here at the 71.50 level cleared to come under pressure as traders work out the interest rate differential is going to get wider. The only thing holding the Pacific Peso up is iron ore prices really:
Oil markets continued to consolidate overnight, absorbing risk volatility with Brent staying just above the $91USD per barrel level. The next target at $100USD per barrel could still be a step to far, as this recent breakout was overextended in the short term, with this consolidation possibly extending lower to the $90USD per barrel level, so watch daily momentum readings to remain above 100 (i.e overbought):
Gold had a minor retracement like other undollars overnight, pushing up to a new weekly high at the $1840USD per ounce level, before pulling back and closing at the $1826 level. Overall, price action is still back on track above the daily trendline from the December lows (far left on chart) after maintaining a solid trend all week, but watch for any further slippage down to trailing ATR support at the $1820 level:
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!wrong on your position, so cry uncle and get out!