A slowing or deep diving US labour market (not that we would know given the lack of NFP prints) saw a lot more weakness in USD overnight as markets anticipate a full rate cut by the Fed in next week’s meeting. Wall Street continued to edge out higher with European stocks dragged along while Treasuries rallied. The Australian dollar initially weakened on yesterday’s national accounts release but then rallied overnight alongside other undollars as it broke through the 66 cent level.
Looking at stock markets from Asia from yesterday’s session, where mainland Chinese share markets fell back sharply in afternoon trade with the Shanghai Composite down 0.5% to retreat below the 3900 point level while the Hang Seng Index fell more than 1% to close at 25670 points.
The daily chart of the Hang Seng Index shows a complete fill of the March/April selloff with a resumption of buying above 26000 points as momentum tried to build but failed to push aside resistance. The latest small bounce off support does not have a lot of momentum here so I am wary of a dead cat bounce:
Japanese stock markets however saw a small bounce, relatively speaking with the Nikkei 225 rising more than 1% to close at 49864 points.
Daily price action was looking extremely keen indeed as daily momentum accelerated after clearing resistance at the 42000 point level with another equity market that looks very stretched and breaking out a bit too strongly here. ATR support was broken at the 50000 point level but daily momentum did not get considerably oversold so there might be life here:
Australian stocks were up slightly with the ASX200 closing at 8598 points. SPI futures are also up only slightly with the better session on Wall Street overnight.
The daily chart pattern was suggesting further upside still possible with a base built above the 8700 point level as daily momentum tried to maintain its overbought status. Short term support has been abandoned, as momentum builds for a broader selloff but watch for some stability that could turn into a bounceback above the 8500 point area:
European markets were mixed across the continent with French stocks pulling back but the Eurostoxx 50 Index actually finished 0.3% higher at 5694 points.
The market has been failing to make headway here due to the too high valuations but short term support was put under a lot of pressure before finding some buyers to stabilise, as this could turn back into a revisit of the recent highs:
Wall Street continues to float slightly higher going into the Fed meeting with the NASDAQ lifting nearly 0.2% while the S&P500 gained a little over 0.3% to close at 6849 points.
The four hourly chart showed that resistance at the 6900 point level was still quite relevant after the bounceback from the end of the US government shutdown rally with recent price action trying to avert last week’s dead cat bounce pattern. Support has firmed at 6500 points, with confidence – aka the Fed punchbowl – returning in full as this looks like a near full fill:
Currency markets are seeing further weakness build in USD as we await the December Fed meeting with King Dollar losing nearly 0.5% against the majors with Euro building well above the 1.16 handle, with the ECB still putting on a neutrally hawkish position going into the new year.
The union currency was building strength as it climbed above previous ATR resistance at the 1.1580 area and is looking still on trend here although some internal resistance is starting to creep in:
The USDJPY pair rebounded from its weekend gap down which saw it fall back to the 155 handle proper but has since reversed those gains overnight to fall back to the start of week position and continue its weekly downtrend.
The previous price action was sending the pair beyond the March highs and had the potential to extend those gains through to start of year position at the 158 handle and this recent volatility has now repeated this move. Watch for support which must hold here or it may crack below the 155 level quickly:
The Australian dollar has been on a tear due to the hot CPI print and has put on a nice trend given the national accounts print and the weaker USD with a move that just saw it break the 66 handle overnight.
Price action was not looking good for the Pacific Peso in the medium term as the interest rate differential squeeze sent it back to the doldrums, but this has inverted as the RBA is probably holding for the foreseeable future alongside the RBNZ. Resistance at the 65 cent area has been pushed aside with a potential run up through the 66 cent level:
Oil markets have been on a downtrend for many weeks now and with no resolution to the Ruzzian Ukrainian wartalks both markers pulled back again with Brent crude staying below the $63USD per barrel level overnight.
The daily chart pattern shows the post New Year rally has a distant memory with any potential for a rally up to the $80 level completely dissipating. There is still potential here for a run down to the $60 level next but we haven’t had a new weekly low for awhile:
Gold was having a much better run than other undollars and zoomed through the $4200USD per ounce level last week on the weaker USD but pulled back somewhat overnight to settle just above that level.
This could be another slightly overdone in the short term ride but then after some more stability, yet another large upside potential move is looming again for the shiny metal as the desire for USD dwindles.
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!