Macro Morning

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Wall Street bounced back on Friday night following its worst one day performance for the calendar year lifting 1% across the board on the back of some cooling inflation data while European stocks slid back amid the volatility going into the year end as markets start to quieten down over the Xmas break. King Dollar had been unopposed all week with a relatively mild fightback from the undollars seeing Euro get back above the 1.04 handle again while the Australian dollar still can’t escape its trajectory and managed a tiny blip to remain just above the 62 cent level.

US Treasury 10 year yields fell back slightly on the PCE data down to the 4.5% level while oil markets are trying hard to stabilise as Brent crude steadied at the $72USD per barrel level. Gold is still under the pump as it tries hard to remain above the $2600USD per ounce level after its recent $50 plus move lower.

Looking at markets from Friday’s session in Asia, where mainland Chinese share markets looked like a much better final session with the Shanghai Composite up 0.6% at one stage before closing dead flat to remain well above the 3400 point level while the Hang Seng Index also barely moved, finishing 0.1% lower at 19720 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:

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Japanese stock markets were also in a relatively stable condition with the Nikkei 225 closing 0.2% lower at 38701 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 indicate a rocky start to the trading week:

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Australian stocks however were again the worst in the region with the ASX200 falling more than 1.2% to 8068 points.

SPI futures however are looking more promising given the rally on Friday night but this looks like catching falling knives again! The daily chart pattern and short price action suggests this rollover has built a little too much momentum to the downside even if support at the 8400 point level was illusory indeed. Watch for a late dead cat bounce here:

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European markets were still playing catchup with mild falls across the continent with the Eurostoxx 50 Index eventually closing more than 0.3% lower at 4862 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 rolled over here with futures indicating more moves below the 4900 point level likely:

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Wall Street tried hard to stabilise on the back of the somewhat cool inflation prints with combined moves higher across the board with the NASDAQ and S&P500 both putting on 1% or so, the latter finishing at 5930 points.

With the government shutdown looming the Orange Santa rally is now fully out of steam on the Fed punchbowl draining with dead cats flying all round the place. There is a high chance of more downside volatility here but the bottom pickers could move in swiftly given the clowns are running the circus even before opening day at the zoo:

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Currency markets remain in the thrall of King Dollar but Friday night’s latest US PCE numbers came in slightly cooler than expected which gave the oversold undollars all the reasons they needed to attempt a bounceback. Across the board however this looks shortlived as. Euro remains well below former support with a weak move up to the 1.04 handle with short term momentum still quite negative.

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:

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The USDJPY pair was unable to push higher from its mid week surge that got a little out of hand above the 157 handle with a small retracement back to the low 156’s on Friday night taking some heat out of this steady uptrend.

Short term momentum has reverted out of extremely overbought settings as price action settles down but there is still potential for more upside here dependent on trading activity this Xmas week:

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The Australian dollar remains one of the most depressed undollars as the RBA plays fiddlesticks amid macro volatility and local recessions but the Pacific Peso did managed a very weak fightback on Friday night but it still can’t get any traction above the 62 handle.

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. Watch for overhead ATR resistance on the four hourly chart to be rejected again:

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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 held well below the $73 level 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:

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Gold suffered almost as much as the Australian dollar on the Fed cut/hold but tried to get sustain a move above the $2600USD per ounce level on Friday night with little success.

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:

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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!