Wall Street suffered its worst one day performance for the calendar year overnight, either on a “hawkish” Fed that still cut rates or by Trump saying he wanted to annex Canada. In any case, risk markets are going to have a terrible last few sessions of the year because of this volatility with Asian stocks likely to open 1-3% lower today. King Dollar remains unopposed and soared to new heights as Euro was crushed below the 1.04 handle again while the Australian dollar made another new yearly low as it cratered down to the 62 cent level.
US Treasury 10 year yields went up more than 11 basis points, almost to the 4.5% level on the notion of lesser cuts expected in 2025 while oil markets are trying hard to stabilise as Brent crude drifted below the $73USD per barrel level. Gold was smashed below the $2500USD per ounce level in a $50 plus move lower.
Looking at markets from yesterday’s session in Asia, where mainland Chinese share markets had a much better session with the Shanghai Composite up 0.6% in afternoon trade, almost breaking through the 3400 point level while the Hang Seng Index is following, up by nearly 0.9% at 19864 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 last month before a massive retracement. Price action was trying to get back to these overextended highs but has failed in subsequent waves so watch for another potential breakdown here:
Japanese stock markets dropped instead with the Nikkei 225 closing 0.7% lower at the 39179 point level.
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 indicate a rocky end to the trading week given the overnight Wall Street moves:
Australian stocks put in a scratch session with the ASX200 closing 0.1% lower at 8309 points.
SPI futures however are down nearly 2% due to the crash on Wall Street overnight, so not a good time for traders to go on holidays just yet! The daily chart pattern and short price action suggests this rollover could build momentum to the downside as it appears support at the 8400 point level was illusory indeed:
European markets actually had a good physical session with some gains across the continent as the Eurostoxx 50 Index eventually closed 0.3% higher at 4957 points.
This was looking to turn into a larger breakout with support at the 4900 point level quite firm with resistance again 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 has started to rollover here with futures indicating a full rollover below the 4900 point level tonight:
Wall Street fell across the board as the Fed took the expected 2025 punchbowl away with steep falls, the NASDAQ losing more than 3.5% while the S&P500 closed nearly 3% lower at 5872 points.
Price action was looking extremely positive but I was nervous about the Orange Santa rally running out of steam here as the 6000 point level might struggle for support and here we are with a crushing move below. This upends all expectations in one foul swift move!
Currency markets have been in the thrall of King Dollar with relatively low volatility in the wake of the ECB and SNB cuts, continuing the downtrend in undollars but last night’s Fed outcome saw a complete obliteration and dominance. Euro broke through tentative support at the 1.04 zone, then was crushed into the lower 1.03 level in a one way move.
This all still fits in with my contention that we are still likely on our way back to parity as traders start to price in the now very unclear future for the continent. The union currency is now making new lows and will likely slide further towards parity going into the end of the trading year:
The USDJPY pair was able to push higher after its recent pause from its rebound last week, pushing up towards but not above the 155 level overnight on the Fed actions.
Short term momentum has switched back to overbought settings as price action makes a breakout in the short term, with the potential for more upside here:
The Australian dollar has been one of the most depressed with Chinese slowing and now a lack of more Fed cuts as the RBA plays fiddlesticks while this all goes on, with the Pacific Peso slashed straight down to the 62 handle as a result.
This breakdown has been on the cards for weeks and will reverberate into the new year as the currency finally reweights according to its position in the global economy – lower tier:
Oil markets are trying to re-engage post the OPEC meeting as Brent crude tries to get out of its depressed mood around the $72-73USD per barrel level, but was again pulled back below the $73 level it breached on Friday night as it still can’t manage to fulfill this bounce.
The daily chart pattern continues to tighten like a spring with short term momentum definitively in negative territory as medium term price action still supports a downtrend with my contention of another sharp retracement forthcoming if the $70-72 zone is not defended:
Gold suffered almost as much as the Australian dollar overnight after failing to hold above the $2650USD per ounce level with a swift $50 plus selloff to break the $2600 level and then some.
Price action had been accelerating in confidence in early December as new levels of support were being created regardless of USD strength but this pullback and rebound both had been fighting too much under the $2700 zone so I have been skeptical of any upside potential. And here we are with a new low for that is threatening the year long uptrend:
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!