Macro Morning

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Last night saw a general absence of tier one economic prints but some key speeches from Fed members including Chair Powell which netted a gain for USD and a selloff in Treasuries as he indicated two more rate cuts are likely on the way. Wall Street followed the very soft mood in Europe but a late surge saw US stocks lift ever so slightly. This will result in a mixed mood here in Asia as Chinese markets are closed for the week while Japanese markets remain in a flux. In currency land, most undollars unwound slightly with Euro returning to the 1.11 level while the Australian dollar held fast above the former 69 cent barrier.

10 year Treasury yields moved higher to the 3.75% level while oil prices stabilised as Brent crude remained stuck at the $72USD per barrel level. Gold was unable to hold on however as it rolled over to cross short term support, closing this morning at the $2630USD per ounce level.

Looking at markets from yesterday’s session in Asia, where mainland Chinese share markets went to the Moon with the Shanghai Composite up more than 7% while the Hang Seng Index was up nearly 4% before closing 2.4% higher to extend way past the 21000 point level.

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 but I’m wary of a sharp retracement on profit taking here when markets return next week:

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Japanese stock markets however slumped across the board with the Nikkei 225 down nearly 5% to 37919 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 possibly on the cards as positive momentum is building but futures are indicating a pullback:

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Australian stocks are trying to be pushed along by Chinese equities with the ASX200 managing a 0.7% lift to close at 8269 points.

SPI futures are down nearly 0.4% despite the late surge on Wall Street overnight. Short term momentum and the daily chart pattern was potentially signalling a top here but price action still shows a clear breakout to new highs with momentum well overbought and ready to extend further:

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European markets pulled back straight away and fell back across the continent as the Eurostoxx 50 Index closed nearly 1.3% lower to close exactly at 5000 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 is still quite positive:

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Wall Street continued to struggle to find positive momentum amid Fedtalk but a late surge in the session saw the NASDAQ advance slightly while the S&P500 gained some 0.4% to close at 5762 points.

The four hourly chart illustrates the series of breakouts since the early September lows as Fed signalling is doing its thing. Price action had a small pause before the Fed meeting but its now all systems go but watch for a potentially small pullback on too much exuberance too soon, as overbought momentum indicates:

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Currency markets remained somewhat in their anti-USD mood but had to absorb the usual weekend gap and the overnight Fed speeches with some intrasession volatility pushing some of the weaker undollars around. At the end of the session, King Dollar is still in somewhat of a dovish mood as traders await this week’s Fed speech and NFP print with Euro only returning to strong support at the 1.11 handle as a result.

The union currency had been structurally supportive before the Fed meeting but this double plunge since did indicate some weakness in the short term as momentum pushes back into the negative zone. This has been filled however as another attempt at overhead resistance at the 1.12 level is still possible here despite this setback:

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The USDJPY had the most volatility to end the week almost below the 142 level on the new Japanese PM and the hawkish response thereof, but overnight saw a big push up through the 143 level as USD strengthened with a not unexpected, albeit likely temporary bounceback.

Momentum had gotten very oversold following the break of the bearish rising wedge pattern but this could be a dead cat bounce with another return to the 140 level still on the cards:

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The Australian dollar really wants to hold above the 69 level following the recent hawkish RBA meeting and in the wake of more rate cut signalling from the Fed its still having a solid go at it overnight, although short term momentum is starting to wane.

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. The potential for more upside remains here although momentum is clearly well overextended:

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Oil markets remain depressed and are somewhat building in volatility as the Middle East conflagration spreads, with Brent crude again steadying at the $72USD per barrel level after the weekend gap.

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:

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Gold had a mild pullback on Friday night and this was continued overnight in the wake of the Fedspeech to rollover below the $2630USD per ounce level and short term support.

Price action was starting to show signs of upside exhaustion here as momentum slows down in the short and medium term timeframes. I continue to watch for any break of short term support at the $2600USD level going into this week’s NFP print as a prelude to a wider retracement on profit taking:

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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

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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)

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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!