Wall Street responded relatively calmly to the latest US inflation data which showed a retraction mainly due to energy prices which now embiggens risk markets to assume the US Federal Reserve will ease off on its rate rise agenda. The USD was hit hard as a result with Euro surging while the Australian dollar pushed up towards the 70 cent level. Bond markets saw yields drop with 10-year Treasury yields pushed down to the 3.4% level while the commodity complex saw oil prices lift again as Brent crude almost pushed through the $84USD per barrel level while gold nearly broke through to the $1900USD per ounce level.
Looking at share markets in Asia from yesterday’s session where mainland Chinese share markets wobbled around after domestic CPI data with the Shanghai Composite putting in a scratch session to remain above the 3100 point level, closing at 3164 points while the Hang Seng Index was down at one stage before a late rally saw it close 0.3% higher at 21514 points. The daily chart continues to look quite boisterous here with a series of step ups since the nadir in October last year as daily momentum remains in extreme overbought mode. It looks like weekly support at the 19000 point level is quite firm as traders bet on a post zero-COVID economic liftoff, but the question is this move sustainable:
Japanese stock markets also put in scratch sessions on the big appreciation in Yen with the Nikkei 225 closing dead flat at 26449 points. There is the potential for a swing long trade to develop further here after bottoming out at the 25000 point level but its not moving fast enough. Daily momentum was oversold and support has held firmly with futures indicating a mixed open to end the trading week on a cautious note:
Australian stocks surged again with the ASX200 closing nearly 1.2% higher at 7280 points. SPI futures are up over 0.5% as Wall Street reacted positively to the CPI print overnight. The daily chart has been showing price action and daily momentum in a decline since the start of December with a breakout confirmed now as it stays well above the high moving average, with overhead ATR trailing resistance and the 7200 point level now pushed aside:
European markets got back on track after a brief mid week hesitation and despite the higher Euro there were solid gains across the continent. The Eurostoxx 50 Index closed over 0.6% higher to extend above the 4000 point level, closing at 4126 points. The daily chart showed key overhead resistance at the 3900 point area under contention before the NFP print with daily momentum building up from a swing trade into a proper breakout. The 4000 point level is the key psychological resistance level that could be turned into support going forward:
Wall Street bounced around overnight on the CPI print with the NASDAQ eventually closing up 0.6% while the S&P500 gained only 0.3% to close at 3983 points. After breaking the series of lower daily highs since Xmas, price action is pushing further above the dominant medium term trendline after hovering around weekly support at the 3800 point level, and its now punching through the December highs. The inability to decisively push through the 4000 point barrier after the inflation print is a bit telling however:
Currency markets had the biggest reaction to the drop in US inflation with the USD battered on all sides as Euro launched well above the 1.08 handle, following its brisk melt up trade last Friday. This pushes price action well above the recent weekly highs as short term momentum goes somewhat overbought, there maybe more upside potential here:
The USDJPY pair conversely was swamped with a big move below the 132 handle that ended up at a new weekly low below the 130 level overnight in a sharp reaction to the inflation print, giving Yen an unwanted big boost. This takes the pair below the start of year position and is setting up for more downside below although short term momentum is way overcooked:
The Australian dollar was able to extend its own recent gains to break through the 69 level with a large amount of intrasession volatility. The recent surge back above the 68 handle had found resistance again just below the 69 level but cast that aside, pushing price action well above the broad weekly uptrend channel limits, which could now accelerate into a new trend:
Oil markets have been under pressure as energy prices falter in a warm northern hemisphere but a snap rally is underway with a second positive session lifting Brent crude almost above the $84USD per barrel level after hovering down near the December lows all week. Daily momentum was looking to return to oversold settings but is starting to pick up again but the overall trend shows price action still below overhead ATR resistance and the dominant downtrend remains in play:
Gold was almost able to push through the $1900USD per ounce level overnight on the US inflation print, falling short but looking set to make more gains today. Trailing ATR support keeps ratcheting higher, now at the $1870 level which is a very solid sign for more upside potential but short term momentum is way overextended. The key area to watch as 2023 gets underway is for the $1800 zone to turn into a solid area of support, and hopefully not turn into resistance, with a view to staying above the daily uptrend line:
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!