You get a trade war – you get a trade war – we all get a trade war! Well, not Australia directly yet but as a satellite of Chyna, it matters not as the Trump wrecking ball through the international economic order yielded a serious blow over the weekend as both Canada and Mexico stepped up the plate and hit back with tariffs of their own. Risk markets will be taking a very deep breath on Monday morning as a literal shit storm will pervade across bond, stock and currency markets – and we’re still less than two weeks into the Orange Clown Presidency. Wall Street fell back on Friday night but futures are indicating at least a 1-2% drop on the open across Asia, with currency markets looking to gap down against USD which will rise substantially against almost everything in the wake of this madness. The Australian dollar was already plumbing the depths of the low 62 cent level on the interest rate differential as the RBA meets soon and it may end up shouting into the storm with little effect.
10 year Treasury yields jumped up on the tariff news with a 7 point leap almost above the 4.6% level while trading in oil was subdued as the ramifications of potential Canadian tariffs on oil exports to the US (which are greatly subsidised) are keeping Brent crude steady at the $76USD per barrel level. Gold however wanted to push further above its recent new all time historical high to almost finish above the $2800USD per ounce level.
Looking at stock markets from Asia in Friday’s session, where mainland share markets remain closed for the Chinese New Year.
The Hang Seng Index daily chart shows how resistance formed around the 21000 point level with only one false breakout in late November squashed back to the 20000 point level where price action has stayed since. This was setting up for another potential breakdown here as price oscillated downward but has turned into an impressive bounce – can it be maintained?
Japanese stock markets did okay through the inflation and Yen volatility with a modest lift across the board as the Nikkei 225 finished 0.2% higher at 39572 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 but resistance is firming as futures indicate a gap down on the open:
Australian stocks had another strong bid to finish the week as the ASX200 closed 0.5% higher at 8532 points.
SPI futures are indicating at least a 1% rout on the open but this could accelerate further downwards as volatility picks up. The daily chart pattern and short price action suggests resistance overhead at the 8300 point level is starting to weigh on the market with a big push through required soon to get back to the 2024 highs with momentum now getting quite overbought:
European markets were unable to make any strong gains with weak moves across all of the continent as the Eurostoxx 50 Index lifted just 0.1% and stayed below the 5300 point level, finishing at 5282 points, helped along by an accommodative ECB.
This was looking to turn into a larger breakout with support at the 4900 point level quite firm with resistance unable to breach the 5000 point barrier in recent months. Price had previously cleared the 4700 local resistance level as it seeks to return to the previous highs as momentum tries to pick up strongly here with the 5000 point level turning into very strong support:
Wall Street was at first supportive but as the trade war news came to light a selloff began swiftly with the NASDAQ losing nearly 0.3% while the S&P500 lost over 0.5%, finishing at 6040 points.
Price action had all the trademarks of a continuation below the 6000 point support level as the potential to overshoot and overreact to the FOMC meeting going into the NFP print next week is building. This should have set up a rally into the 6200 point area but could the first stage of a pump and dump scheme:
Currency markets already had a lot to absorb before the trade war outbreaks with successive central bank meetings from the ECB, BOJ and Fed in recent weeks and Friday night saw sentiment swing directly through to the USD as Euro amongst others wash pushed down into new weekly lows.
The union currency recently found overhead resistance at the 1.05 handle but has deflated all week before the Friday night slam dunk into the mid 1.03 area as momentum accelerates to the downside. Short and medium term support is now under threat with what could be a very violent gap over the weekend:
The USDJPY pair broke down earlier in the week but was able to bounce back on Friday night post the ECB meeting and BOJ comments on inflation even before the tariff chaos, heading straight back above the 155 level on the stronger USD.
Short term momentum was extremely oversold before the start of week bounce back but this looks to be a truly dead cat as the weak USD meme is entrenched here:
The Australian dollar looks to be one of the biggest casualties of the trade war even though the boffins at Martin Place are hoping it uses a stealth mode or something as they prepare to do some rate cuts, but this might be counterproductive as the Pacific Peso is going down…On Friday night it at first jumped a little bit out of its funk but soon turned around and almost finished below the 62 cent level.
The recent follow through to the high 62’s and low 63’s was always high risk going into the live February RBA rate meeting and after the Trumpian tariff crusade so watch for a rejection of medium term support at the mid 61 cent level this week for a possible run into the 50s….
Oil markets are slowing down from their retracement with Brent crude finishing slightly above the $76USD per barrel level, with some support building here as the complex starts to absorb the potential for an energy trade war between the US and Canada.
The daily chart pattern shows the post New Year rally that got a little out of hand and now reverting back to the sideways action for the latter half of 2024. I’m watching for a potential new rally to form above the $77USD per barrel level from here:
Gold however is back on track after recently running out of steam trying to breach the $2800USD per ounce level last week with proper go at it on Friday night and then almost closing above the key level in a very strong move.
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. However this is looking more interesting as the previous weekly high is now surpassed although momentum is quite overbought:
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!