Overnight the Fed surprised some with a bigger than expected 50bps cut and indicated another one is potentially on the way before the end of the year. Wall Street fell back slightly while currency markets seemed to have already absorbed the news prior to the release, albeit with some intrasession volatility. The USD was basically unchanged as a result as Euro held above the 1.11 handle while the Australian dollar briefly broke through the 68 cent level before stabilizing at the high 67’s.
10 year Treasury yields moved higher however, up more than 6 points to break through the 3.7% level while oil prices pulled back as Brent crude retraced below the $73USD per barrel level. Gold actually deflated somewhat and took another small hit to finish at the $2550USD per ounce level this morning.
Looking at markets from yesterday’s session in Asia, where mainland Chinese share reopened with the Shanghai Composite up slightly while the Hang Seng Index was closed for a holiday.
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. Short term resistance is finally coming under threat here, watch for any break above the 18000 point level:
Japanese stock markets have stabilised somewhat with the Nikkei 225 lifting nearly 0.5% to 36380 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 remains a problem here, with a sustained return above the 38000 point level from May/June not on the cards as there is not enough bidding to build positive momentum:
Australian stocks were unable to put in any gains as the ASX200 closed dead flat at 8142 points.
SPI futures are down 0.5% due to the reaction to the Fed cut 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 struggled again with mild losses across the continent with the Eurostoxx 50 Index closing 0.5% lower to 4835 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 only mildly positive for now:
Wall Street fell back in unison to the big cut from the Fed but it was mild across the board really as the NASDAQ and the S&P500 lost 0.3% each, the latter closing at 5618 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. Price action was getting a little overextended but is now in pause mode:
Currency markets were still broadly in an anti-USD mood before the Fed meeting and of course there was a huge intrasession volatiltiy as all undollars broke out on the big cut, before finding some reason and pulling back. Euro nearly pushed through the 1.12 handle but has recovered to a slightly lower position as of this morning at just above the 1.11 handle.
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 also relatively stable overnight with the usual volatility seeing it dip below the 141 level before finishing the session where it started above the 142 level instead.
Momentum was suggesting a possible bottom was brewing as the BOJ wants to get this volatility under control, so this bounceback could have legs to the 144 level or higher but will pivot completely on the reaction to the Fed meeting tonight and today’s BOJ meeting:
The Australian dollar is still holding on to its climb above the 67 handle despite the volatility with short term momentum maintaining a slightly overbought condition if we look through the intrasession volatility.
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 pullback here if expectations aren’t met with the 68 handle remaining very strong resistance overhead:
Oil markets remain depressed amid OPEC’s warning and failed to continue its relief rally overnight with Brent crude pulling below the $73USD per barrel level as a result.
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 just hold on in the wake of the Fed meeting overnight with a breakout that almost took it above the $2600USD per ounce level but subsequently retraced below its starting position to finish just above short term support.
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!