Risk markets pivoted on two European bank cuts overnight as the SNB and ECB both slashed rates, the former surprising with a 50bps cut while the latter did the expected 25bps. Wall Street failed to get back on track alongside wavering European shares while the USD was largely unchanged in direction as the undollars drifted lower. Euro slid further below the 1.05 handle alongside Yen while the Kiwi and Australian dollar both made new lows, the latter unable to hold after yesterday’s “good but bad” unemployment print.
US Treasury 10 year yields spiked more than 6 points higher to the 4.3% level while oil markets stabilised somewhat from their recent reversal following the Syrian toppling as Brent crude lifted slightly above the $73USD per barrel level. Gold however snapped back from its strong post weekend rally on Chinese bank buying as volatility continues to lift in the shiny metal, breaking back below the $2700USD per ounce level.
Looking at markets from yesterday’s session in Asia, where Chinese share markets are having a solid session with the Shanghai Composite up more than 0.8% to extend above the 3400 point level while the Hang Seng Index is taking back its previous losses, up by more than 1.2% to close at 20397 points.
The Hang Seng Index daily chart shows how short term resistance was finally being pushed away with a huge breakout above the 19000 point level that then set up for a run at the 20000 level in the response to PBOC stimulus last month before a massive retracement. Price action is now trying to get back to these overextended highs but have failed in subsequent waves:
Japanese stock markets are no longer mixed and seeing strong bids with the Nikkei 225 up more than 1.2% to just below the 40000 point level.
Price action had been indicating a rounding top on the daily chart with daily momentum retracing away from overbought readings with the breakout last month above the 40000 point level almost in full remission. Yen volatility remains a problem here, with a sustained return above the 38000 point level from May/June possibly on the cards as positive momentum is building and futures indicate another surge:
Australian stocks continue to be the odd ones out and remain in sell mode with the ASX200 closing 0.3% lower at 8330 points.
SPI futures are down 0.7% due to the reversal on Wall Street overnight, which will likely cause a poor finish to an already dour trading week. The daily chart pattern and short price action suggests a rollover could be underway as it appears support at the 8400 point level is weak indeed:
European markets failed to continue their strong rebound but managed minor gains across the continent later in the session as the Eurostoxx 50 Index eventually closed 0.1% higher at 4962 points.
This was looking to turn into a larger breakout with support at the 4900 point level quite firm with resistance again unable to breach the 5000 point barrier. Price had previously cleared the 4700 local resistance level as it seeks to return to the previous highs but momentum has started to rollover here:
Wall Street went straight back into profit taking mode on Fed cut speculation with the tech heavy NASDAQ losing more than 0.6% while the S&P500 closing 0.5% lower to finish at 6051 points.
Price action was looking extremely positive but perhaps the Orange Santa rally is running out of steam as the 6000 point level might turn into support going forward. If tonight’s session can reverse the recent losses watch for last week’s NFP highs to come under threat next for a continued rally into the New Year:
Currency markets reacted with relatively low volatility in the wake of the ECB and SNB cuts, continuing the downtrend in undollars following the recent US CPI print with USD now fully recovering from its post-NFP funk against Euro which made a new weekly low overnight.
This fits in with my contention that we are still likely on our way back to parity as traders start to price in the now very unclear future for the continent. The union currency is now making new weekly lows after the false NFP breakout and could slide further going into the end of the trading year:
The USDJPY pair was unable to push further out of retracement mode overnight but has held on to its modest rebound after recently being pushed aside as Yen returned to strength, maintaining well above the 152 level.
Short term momentum has switched to positive settings as price action makes new short term highs so this could be setting up for a further advancement here above the 152 level, but I remain cautious:
The Australian dollar remains flummoxed with a series of false breakouts just pushing it lower and lower, with yet another reversal overnight sending it back below the 64 handle.
The Pacific Peso remains under pressure on reweighting risks and the lack of action from the RBA as it wants to hold through to Feb/March next year given that a rate cut from the Fed is imminent, with a possible further breakdown going into the end of year at the 63 or even lower levels:
Oil markets are trying to re-engage post the OPEC meeting but Brent crude remains somewhat depressed around the $72-73USD per barrel level overnight, still trying to get above its recent monthly low.
The daily chart pattern continues to tighten like a spring with short term momentum definitively in negative territory as medium term price action still supports a downtrend with my contention of another sharp retracement forthcoming if the $70-72 zone is not defended:
Gold broke through the $2700USD per ounce level on Chinese bank buying speculation making a new high for the month, before giving up overnight with a reversal back down to the $2680 level.
Price action had been accelerating in confidence as new levels of support were being created for the shiny metal regardless of USD strength but this pullback and rebound both had been fighting too much under the $2700 zone so I’m skeptical of this breakout lasting here despite strong momentum:
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!