Friday night saw another broad advance across European and American stocks, taking back their previous weekly loss to keep September a scratch month so far. The mid week CPI print was followed up by a more supportive consumer sentiment print that initially saw USD go lower against the majors before a very late push higher as interest rate speculation continued. The FOMC meeting this week is likely to result in just a 25bps cut, which markets will of course hinge on. Euro almost cross the 1.11 handle but remains somewhat weak structurally while the Australian dollar also kept above the 67 cent level but only just.
10 year Treasury yields moved slightly lower again but its all been relative this week as they settle below the 3.7% level while oil prices had another mild bounceback as Brent crude lifted above the $72USD per barrel level. Gold continues to outperform as it pushed well above its recent weekly highs to the $2580USD per ounce level.
Looking at markets from Friday’s session in Asia, where mainland Chinese share markets were up initially but failed to advance going into the close with the Shanghai Composite down nearly 0.5% while the Hang Seng Index has gained nearly 0.8% to 17369 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 possibly looming here again as price action just can’t clear short term resistance:
Japanese stock markets meanwhile pulled back sharply with the Nikkei 225 down nearly 0.7% at 36581 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. I still contend there is not enough to build positive momentum:
Australian stocks were able to put in some gains to end the trading week on a high note as the ASX200 closed 0.3% higher to extend above the 8000 point level at 8097 points.
SPI futures are up nearly 0.2% although this could translate into higher gains on the open due to the continued rebound on Wall Street from Friday night. 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 finally strong and united across the continent with the Eurostoxx 50 Index closing 0.6% higher to 4843 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 and helped by the somewhat lower USD as the NASDAQ gained nearly 0.6%, capping off a strong week while the S&P500 lifted 0.5% to close at 5626 points.
The four hourly chart illustrates how the inability to clear the 5600 point level in mid August and even match the July highs was setting up for a significant retracement that could end up at the 5100 point level as the Fed punchbowl is taken away. However, risk has fought back in the wake of the latest CPI print with strong upside momentum to bounceback above the 5500 point level – but is this getting a little overextended again:
Currency markets had been in the thrall of a strong USD even before the recent US CPI print but the ECB cut has seen King Dollar fall off the throne temporarily as Euro almost pushed above the 1.11 handle after recently making 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. Momentum had been quite oversold in the short term but has picked up here to almost overbought with overhead resistance at the 1.11 handle the area to beat next:
The USDJPY was trying to stabilise somewhat overnight, but pulled below the 141 level on Friday night, keeping the downtrend in play for another new monthly low.
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 was able to climb out of its very weak position as the PPI print gave it legs above the 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. I still contend there remains potential to fall further here with the 68 handle remaining very strong resistance overhead:
Oil markets remain depressed amid OPEC’s warning but had a small relief rally overnight with Brent crude climbing back above the $72USD per barrel level in an unconvincing move.
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 not only extend its recent gains above the $2500USD per ounce level overnight but soar above weekly resistance in the wake of the PPI print and weaker USD with a surge through the $2550 level.
The longer term support at the $2300 level remained firm while short term resistance at the $2470 level was the target to get through last week and has been the anchor point for this week’s price action. Momentum was picking up before this breakout and is now well overextended so watch for a small pullback:
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!