See the latest Australian dollar analysis here:
Risk sentiment soured overnight as stock markets pulled back after being in a holding pattern waiting for the next Federal Reserve interest rate hike at the upcoming FOMC meeting this week. Both European stocks and Wall Street had lower sessions while on currency markets saw a resurgence in USD strength particularly against Euro and the Canadian dollar while the Australian dollar remained stubbornly high above the 69 cent level. Bond markets saw some roundtripping of yields with 10 year Treasuries moving slightly lower to the 2.8% level, as US interest rate futures continue to indicate a 75bps rate rise at the next Fed meeting. Commodity prices were still volatile with Brent crude returning below the $100USD per barrel level while copper rose slightly and gold is slowly losing its recent gains to close below the $1720USD per ounce level.
Looking at share markets in Asia from yesterday’s session, where mainland Chinese share markets lifted strongly into the close with the Shanghai Composite closing up 0.8% to 3277 points while the Hang Seng Index had an ever strong reversal, up more than 1.7% to close at 20905 points. Sentiment continues to wane on the daily chart with considerable overhead resistance and daily momentum readings remaining oversold as the previous swing play reverts back to the downtrend although some support is building at the 20000 point level:
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Japanese stock markets were the odd ones out, with the Nikkei 225 down 0.2% to 27655 points. The daily chart is still suggesting this breakout may not have the legs to continue, with resistance building at the previous highs at the 28000 point area as daily momentum reverts from its overbought status. Although price has made a new weekly high, this market is in a pause phase for now with the overall monthly/weekly trend (sloping black line above) still in play:
Australian stocks had a minor lift with the ASX200 closing 0.2% higher to finally cross back above the 6800 point level, finishing at 6807 points. SPI futures however are showing this to be taken away and then some, with an open at least 0.5% lower which is better than expected given the waning sentiment on overseas markets. The daily chart is still showing a breakout situation in the short term after trafficking sideways with a potential bottom forming here as support firms around the 6600 point level, but is yet to be converted into a new uptrend. Daily momentum is now nominally positive with the potential for upside action building with a breakout above short term resistance but not yet threatening deeper overhead ATR resistance near the 7000 point level:
European stocks were again a mixed bag with German stocks pulling back the strongest, hence the Eurostoxx 50 index losing 0.8% to finish at 3575 points. The daily chart shows price action trying to move higher through overhead resistance as a bottom is nearly formed here at the 3400 point level. Daily momentum was overbought but unable to engage higher, as ATR resistance at the 3600 point level continues to be rejected:
Wall Street went from mixed to outright selling as the NASDAQ led the way again, finishing 1.9% lower while the S&P500 lost just over 1% to close at 3921 points, all but confirming that the elusive 4000 point level has firmed as very strong resistance. The four hourly chart was showing a pause that is now translating Friday night’s action into a new rollover as short term momentum retraces fully from its overbought status. As I warned last week, a failure here to get back above 4000 will likely see a retracement back to the end of June lows at 3730:
Currency markets increased in volatility in anticipation of tomorrow’s FOMC decision but it was mainly contained to Euro and Pound Sterling, although the Loonie fell back sharply as well as the USD continues to build strength. The union currency pushed straight down below the 1.02 handle after tracking sideways in an obvious holding pattern. The four hourly chart was showing a potential short term top brewing as resistance builds past the mid 1.02 level with the medium term trend still broadly down against the USD, so this retracement below the low moving average and down to ATR support is not unexpected. Watch for a proper break below tonight:
The USDJPY pair is trying to clawback its big losses following the ECB hike but internal weakness is keeping it contained just below the 137 level. The real level to watch here is former ATR support at the 137 mid level that has turned into solid resistance. Oversold momentum is providing a classic swing play here up towards the high moving average on the four hourly chart, but nothing to get excited about just yet:
The Australian dollar had a pause overnight alongside other undollars, as it remains anchored at the mid 69 level, matching its Friday night highs. The short term moves seem to look good for the Pacific Peso before we head into the next Fed meeting, but I still contend is a big bull trap. Resistance is firming here at the 70 level, momentum has retraced from overbought status, so watch for a possible retracement below the 69 level on hesitation alongside other commodity currencies and then a probable flop to trailing ATR support on the Fed hike:
Oil markets are failing to recover with another retracement back below the $100USD per barrel level for Brent crude as higher USD weighs on commodity markets. Price action failed to continue the previous week’s bounce off the $90’s lows, with the downtrend line yet to be beaten from the June highs and nor has daily momentum got out of its negative funk, so watch for the $100 level to continue to turn into resistance here:
Gold is still not unable to translate its Friday surge into something higher with another deflation overnight, retracing back to the $1717USD per ounce level. Not as bad as other undollars, so there is some hope here but this remains a swing play as the downtrend still looks well entrenched. Watch for another close below the four hourly chart or the $1700 level next:
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!