The long expected cut from the ECB transpire overnight without much fuss, giving European shares a leg up but Wall Street struggled to rebound as the latest retail sales numbers outperformed. The stronger USD weighed further on the undollars with Euro spiralling further down while the Australian dollar continued its descent below the 67 cent level as well.
US bond markets however sold off slightly with 10 year Treasury yields up more than 8 points to bounce back above the 4% level while Brent crude also continued its falls below the $75USD per barrel level. Gold made a new high despite the gains in USD as it continued its bounce off the $2600USD per ounce support zone as it pushed through the $2670 level.
Looking at markets from yesterday’s session in Asia, where mainland Chinese share markets fell sharply into the close with the Shanghai Composite down more than 1% to fall below the 3200 point barrier while the Hang Seng Index was off by more than 1% to 20079 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 another potential breakdown:
Meanwhile Japanese stock markets are having another bad day with the Nikkei 225 closing more than 0.7% lower at 38911 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. Futures unfortunately are indicating another pullback:
Australian stocks were the standout with the ASX200 launching nearly 0.9% higher to 8355 points.
SPI futures however are indicating a small pullback on the open due to the scratchy wobbly sessions on Wall Street overnight. 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:
European markets rebounded following the ECB meeting overnight with mild gains across the continent as the Eurostoxx 50 Index closed nearly 0.8% higher but remain below the 5000 point level, finishing at 4948 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 as momentum was picking up here but the lower Euro is not yet helping:
Wall Street just can’t get back on track with a series of scratch sessions overnight with the NASDAQ finishing flat while the S&P500 closed a few points lower at 5841 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 breakout on the previous NFP print but the sequential hurricanes and Middle East tensions took a toll before CPI/PPI volatility is swinging back higher again. This was looking extremely bullish as we barrel into the end of the election cycle but the volatility is building:
Currency markets are being dominated by USD strength amid the geopolitical strife as the ECB helps King Dollar squeeze Euro lower and lower, this time almost cracking the 1.08 handle 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 as the 1.09 level has broken down here:
A stronger USD has kept the USDJPY elevated as it builds above the 149 level and indeed crosses the 150 handle late 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 so watch for the crossing of the 150 level as a harbinger of more to come:
The Australian dollar is still bound at short and medium term support after dropping below the 68 cent level before last week’s NFP print but has failed to hold at the 67 cent level, falling below that level overnight and looking very weak here.
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. This no longer looks like a bottoming action with momentum clearly oversold and ready for more downside here:
Oil markets are still high in volatility but its all downside at the moment as Brent crude was pushed further below the $75USD per barrel level overnight in a follow up move to the previous session.
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 could set up another sharp retracement:
Gold was able to not just return to its former high at the $2660USD per ounce level overnight but push higher for a new record high, almost breaking through the $2700 level as it pushed aside weekly resistance.
Price action had been trying to get back to the more dominant medium term trend amid the short term confusion and volatility around the US CPI print and is now accelerating in confidence despite the higher USD with the $2700 level coming under threat next:
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!