Last night’s all-important US CPI print came in somewhat mixed with the core inflation reading slightly higher than expected. Wall Street continued with its rebound, again led strongly by tech stocks while European markets were at best mixed. The USD firmed in the wake of the inflation print with Euro sliding back to the 1.10 handle while the Australian dollar was the strongest of the day after being in a very weak position previously, bouncing up towards the 67 cent level.
10 year Treasury yields moved slightly higher to the 3.7% level while oil prices remained extremely weak as Brent crude stayed around the $70USD per barrel level. Gold initially lost ground on the CPI print but fought back to remain above the $2500USD per ounce level.
Looking at markets from yesterday’s session in Asia, where mainland Chinese share markets were down initially but failed to recover into the close with the Shanghai Composite off by more than 0.8% while the Hang Seng Index has lost nearly 1% to 17108 points.
The Hang Seng Index daily chart was starting to look more optimistic a few months back but price action has slid down from the 19000 point level and continues to deflate in a series of steps as the Chinese economy slows. Another downside move is again looming here as price action just can’t clear short term resistance:
Japanese stock markets meanwhile are falling sharply again on Yen appreciation with the Nikkei 225 closing nearly 1.5% lower to 35619 points.
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 is coming back so a sustained return above the 38000 point level from May/June just doesn’t seem possible. Futures indicate a better session today but I still contend there is not enough to build positive momentum:
Australian stocks were again the most positive in the region but it was all relative as the ASX200 closed 0.3% lower to retrace back below the 8000 point level at 7987 points.
SPI futures are up 0.6% due to the tech led rebound on Wall Street overnight. Short term momentum and the daily chart pattern was potentially signalling a top here and this combination could still eventuate, as support at or just below the 8000 point level remains key to filling this gap and to give a chance to move higher:
European markets were mixed across the continent with swings and roundabouts as the Eurostoxx 50 Index closed 0.3% higher to 4763 points.
The daily chart shows price action off trend after breaching the early December 4600 point highs with daily momentum retracing well into an oversold phase. This was looking to turn into a larger breakout with support at the 4900 point level quite firm with resistance just 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 remains neutral for now:
Wall Street was once again led by tech stocks in reaction to the CPI print as the NASDAQ gained more than 2% while the S&P500 lifted 1% to close at 5554 points.
The four hourly chart illustrates how the inability to clear the 5600 point level in mid August and even match the July highs is setting up for a significant retracement that could end up at the 5100 point level as the Fed punchbowl is taken away. In the short term, momentum was not extremely oversold so this bounceback above the 5500 point level was not a big surprise – but can it stick the landing:
Currency markets remain in the thrall of a strong USD following last night’s US CPI print as King Dollar yet again firmed against almost all the majors. Euro has fallen below the previous weekly lows to settle right on the 1.10 handle for a new monthly low.
The union currency had been structurally supportive despite the start of week extended dip that reversed on built in expectations of this soft jobs print, with those expectations dashed and then some on the night! Watch now for a potential follow through below the 1.10 handle as momentum remains quite oversold in the short term:
The USDJPY was able to stabilise somewhat overnight, taking back its near 100 pip move in the previous session to finish just above the 142 level this morning, taking it back to where it started the trading week.
Momentum was suggesting a possible bottom was brewing as the BOJ wants to get this volatility under control, but this retracement could last longer than expected and not yet out of the woods:
The Australian dollar fell out of bed after last Friday’s NFP print, making a new monthly low in the process but is now trying hard to climb out of its very weak position with a false breakdown launching it back to almost breach the 67 handle overnight.
During June the Pacific Peso hadn’t been able to take advantage of any USD weakness with momentum barely in the positive zone but that has changed in recent weeks with price action finally getting out of the mid 66 cent level that acted as a point of control. There remains potential to fall further here as the series of lower highs on the four hourly chart shows a lack of buying:
Oil markets remain in sell mode amid OPEC’s warning with Brent crude dipping lower below the $70USD per barrel level before a very late rebound that still keeps it at a new three year low.
After breaking out above the $83 level last month, price action had stalled above the $90 level awaiting new breakouts as daily momentum waned and then retraced back to neutral settings. Daily ATR support had been broken with short term momentum remaining in negative territory, setting up for this sharp retracement and continued selloff:
Gold was able to extend its nascent gains above the $2500USD per ounce level overnight but short term momentum is still only marginally positive with the weight of the stronger USD still weighing on the safe haven.
The longer term support at the $2300 level remains firm while short term resistance at the $2470 level was the target to get through last week and is likely to be the anchor point for this week’s price action. Momentum is picking up but the series of lower highs on the four hourly chart needs a significant breakthrough soon:
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!