Risk markets bounced back overnight despite the Chinese tariffs coming into effect as Wall Street rebounded alongside European bourses as the overbought USD was pushed back by all the undollars. The latest economic news from the US and solid earnings reports overshadowed the Trump Trade War with the Federal Reserve still expected to cut once more. The Australian dollar came back sharply again to bounce back well above the 62 cent level after almost crossing below the key 60 handle from this weekend.
10 year Treasury yields pulled back again slightly, off by 3 points to the 4.5% level while trading in oil was volatile with wide ranging sessions as Brent crude finished at the $75USD per barrel level. Gold however has succeeded once more in pushing above its recent new all time historical high to finish at the $2840USD per ounce level.
Looking at stock markets from Asia in yesterday’s session, where mainland Chinese share markets remain closed for the Chinese New Year while the Hang Seng Index reopened and soared nearly 3% higher to close at 20789 points.
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 and looks like continuing as markets reopen:
Japanese stock markets bounced back the most in the region, with the Nikkei 225 finishing nearly 0.8% higher at 38802 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 however eventually put in a scratch session with the ASX200 closing 0.1% lower at 8374 points.
SPI futures are up 0.6% due to the rebound 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 once overbought but now steady:
European markets were able to play catchup and rebound across most of the continent as the Eurostoxx 50 Index finished nearly 0.9% higher at 5264 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 rebounded with the NASDAQ putting on more than 1.3% while the S&P500 bounces back over 0.7%, finishing back above the 6000 point level at 6032 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 this 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 although overhead resistance is weakening:
Currency markets have now completed their reversals due to the “stay” on tariffs for Canada and Mexico and have absorbed the expected Chinese tariffs with the violent gap downs against most of the undollars now mostly recovered as of this morning. Euro gapped down to the 1.02 level before heading back to the 1.03 handle and is now poised to climb above 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 with a break below the 155 level 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 and this hasn’t come to pass as USD weakens structurally overall:
The Australian dollar was one of the biggest casualties of the trade war as the Pacific Peso gapped down to the 60 handle but has now shot higher than its Friday night finish to be at the mid 62 level this morning.
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 although this bounceback could shot over the 200 day MA (moving black line):
Oil markets are now in flux due to the energy war with China as both WTI and Brent crude had wide ranging sessions, the latter finishing slightly below the $76USD per barrel level with some support building here in a weak fashion.
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 remains on track after recently running out of steam trying to breach the $2800USD per ounce level last week with an extended run above that level to almost cross the $2850 level 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!