The latest Federal Reserve Minutes underpinned risk markets belief that more rate cuts are on their way, but the USD still moved strongly against all the currency pairs with Euro at a new low while Wall Street bounced back to new record highs. This should translate to gains in Asian stock markets in today’s session.
10 year Treasury yields moved higher, lifting nearly 4 points to extend further above the 4% level while oil prices slipped slightly as Brent crude eventually finished around the $76USD per barrel level. Gold failed to find any upside as it broke closer to the $2600USD per ounce level overnight.
Looking at markets from yesterday’s session in Asia, where mainland Chinese share markets lost most of their recent stimulus frenzy gains with the Shanghai Composite falling more than 6% to 3258 points while the Hang Seng Index was relatively steady before selling off at the close to finish 1.3% lower at 20637 points.
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. I was always wary of a sharp retracement on profit taking here on the return of mainland markets and here we are with the 20000 point level setting up for support:
Meanwhile Japanese stock markets are getting back on track with the Nikkei 225 closing nearly 1% higher at 39277 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 possible relief rally today:
Australian stocks were basically unchanged as hesitation continued to mount with the ASX200 up just 0.1% to close at 8187 points.
SPI futures are up 0.4% due to the lift on Wall Street overnight with the lower Australian dollar again helping. Short term momentum and the daily chart pattern was potentially signalling a top but price action still shows a clear breakout to new highs with momentum somewhat overbought, but some buying exhaustion might be setting in:
European markets this time took a better risk cue and lifted across the continent as the Eurostoxx 50 Index closed more than 0.6% higher to 4982 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 not quite overbought here:
Wall Street was able to push even higher with some new record highs on the back of the Fed minutes overnight with the NASDAQ putting on more than 0.6% while the S&P500 closed 0.7% higher at 5792 points for a new high.
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 breakout on Friday night’s NFP print but the sequential hurricanes and Middle East tensions are taking a toll here although volatility is swinging back again:
Currency markets are remaining in the thrall of USD strength again amid the geopolitical strife with King Dollar really squeezing Euro below the 1.10 handle after its breakdown on Friday with more downside to almost crack the 1.09 level overnight.
The union currency had been structurally supportive before the Fed meeting and US jobs report but a double plunge indicated more weakness in the short term as momentum collapsed into the oversold zone with a breakdown of short term ATR support as well. Overhead resistance has now moved to the 1.11 level in the short term with any breaks above the 1.10 level likely temporary:
Rate hike speculation sent the USDJPY pair higher last week and the stronger USD has kept it elevated over the weekend gap as its builds well above the 148 level overnight to just break through the 149 handle this morning.
Momentum had gotten very oversold following the break of the bearish rising wedge pattern and I thought this could be a dead cat bounce with another return to the 140 level but that was nullified with this reversal potentially having more legs in the coming sessions:
The Australian dollar is still breaking below short term support after dropping below the 68 cent level before Friday’s NFP print and has continued this decline overnight to almost break the 67 cent level.
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. Tonight’s US CPI print could be a catalyst for further downside here:
Oil markets are still high in volatility as the Middle East wars spread, with Brent crude continuing down through the $81USD per barrel level in a selloff overnight to finish at just below the $77 level.
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 but short term momentum was only slowly getting out of negative territory, but this is a clear move higher as the Iranian oilfields are likely to be targeted next:
Gold had previously failed returned to its former high at the $2660USD per ounce level after bouncing off short term support last week but fell further overnight heading straight down to medium term support at the $2600USD per ounce level.
Price action was starting to show signs of upside exhaustion here as momentum slows down in the short and medium term timeframes. I was watching for any break of short term support at the $2600USD level following the NFP print as a prelude to a wider retracement on profit taking and here we are:
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!