Risk markets took their deep breath yesterday morning in reaction to the Trumpian Trade War but overshot as usual, with some mild recoveries overnight including Wall Street. Currency markets flocked to the USD but have recovered at least half of their respective movements with the Mexican turnaround or stay helping ease the volatility, although the crosses are still moving around quite a bit as international trade will no longer be dominated by USD flow. The Australian dollar came back sharply on news that their will be a stay on Canadian tariffs as well and is now back above the 62 cent level after almost crossing below the key 60 handle.
10 year Treasury yields also pulled back to the 4.5% level while trading in oil saw a reversal as well with Brent crude back down to the $75USD per barrel level. Gold however has succeeded in pushing above its recent new all time historical high to finish above the $2800USD per ounce level.
Looking at stock markets from Asia in yesterday’s session, where mainland and offshore Chinese 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 when markets reopen this week?
Japanese stock markets felt the heat immediately with the Nikkei 225 finishing nearly 3% lower at 38405 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:
Australian stocks also felt the new timewarp back to the 1930’s with the ASX200 closing some 1.9% lower at 8379 points.
SPI futures are up 0.4% despite the falls on Wall Street overnight so expect more volatility in today’s session. 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 of course had falls across all of the continent, but they were cushioned by the lower Euro as the Eurostoxx 50 Index lost 1.3% finishing at 5217 points.
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 feel sharply at first but was able to recover somewhat nearer the close with the NASDAQ losing nearly 1.2% while the S&P500 lost over 0.8%, finishing below the 6000 point level at 5991 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 are having the biggest reversals due to the “stay” on tariffs for Canada and Mexico with the violent gap downs against most of the undollars now mostly or at least half recovered as of this morning. Euro gapped down to the 1.02 level before heading back to the 1.03 handle but is still well down on its Friday night finish.
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 still under threat here and requires a significant move higher before calling this over:
The USDJPY pair had a similar trajectory to the other pairs with Yen firming overnight and then simmering down with a sub 155 level finish this morning before the Tokyo open.
Short term momentum was extremely oversold before the start of week bounce but requires price action to at least get over the 156 level to call this a proper trend higher for USD:
The Australian dollar remains one of the biggest casualties of the trade war as the Pacific Peso gapped down to the 60 handle yesterday morning before shooting back up to the 62 cent level on very recent news of the stay in Canadian tariffs.
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:
Oil markets slowed down from their recent retracement but also suffered a reversal of fortune within the single day as Brent crude finishing slightly below the $76USD per barrel level after breaking through $77, 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 a full closed above that level as of this morning.
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!