Risk markets are diverging in fortune again as European equities continue their strong trend higher despite tariff threats while the latest testimony by Fed Chair Powell on interest rate trajectory saw a bit of a wobbly finish on Wall Street overnight. The USD is all over the place with Euro surging while the Australian dollar is looking quite strong just below the 63 cent level as traders weigh up next week’s long awaited RBA meeting as like the Loonie it keeps rejecting volatility around more Trumpian theatrics over tariff threats.
10 year Treasury yields moved higher again on Powell’s comments to extend above 4.5% level while trading in oil saw both markers jump slightly higher as Brent crude almost finished above the $77USD per barrel level. Gold had previously pushed through to a new record high above the $2900USD per ounce level but had a small pullback on buying exhaustion.
Looking at stock markets from Asia in yesterday’s session, where mainland Chinese share markets have paused their strong bounceback with the Shanghai Composite falling 0.2% but still above the 3300 point level while the Hang Seng Index fell down sharper, off by more than 1% to 21294 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 reopened after the NY break with the previous monthly highs at the 21500 point level the target to beat:
Japanese stock markets were closed due to yet another holiday with Nikkei 225 futures indicating a lift on the open today.
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 no longer on the cards as resistance is firming. Watch for a potential breakdown below the 38000 point level:
Australian stocks were dead flat in the wake of the latest consumer confidence figures with the ASX200 closing at 8484 points.
SPI futures are also flat again due to the uneasy finish on Wall Street overnight. 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. I’m a bit concerned about those negative candlesticks going into the RBA meeting too:
European markets continue to do a lot better than expected with steady moves higher across most of the continent as the Eurostoxx 50 Index lifted more than 0.6% to close at 5390 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 picks up strongly here with the 5000 point level turning into very strong support:
Wall Street however struggled to put some runs on the board with tech stocks pulling back on earnings again as the NASDAQ dropped nearly 0.4% while the S&P500 was flat to remain above the 6000 point level at 6067 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 tonight 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 are starting to really diverge in fortune with the USD not strong across the board with Euro pushing back while Yen pulls away and other commodity currencies like the Loonie reject yet another round of BS from Trump. Euro pushed well above the 1.03 handle and is looking to threaten overhead resistance at the 1.045 level next but momentum remains neutral in the short term.
The union currency deflated all week before the previous Friday night slam dunk into the mid 1.03 area on the tariff troubles as daily momentum remained to the downside. Short and medium term support is still under threat here and requires a significant move higher or we could see a return to the 1.02 level:
The USDJPY pair is trying to get out of its funk with Yen pulling back slightly from its strong position with a move back above the 152 level in the wake of the US jobs print from last week.
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 and domestic policies continue to strengthen Yen:
The Australian dollar should be one of the biggest casualties of the trade war as the Pacific Peso gapped down to the 60 handle recently but has now fought back and looks like breaking out above the 63 cent level with support strongly filled in this week so far.
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 although this bounceback could shot over the 200 day MA (moving black line) with a clear inverted head and shoulders pattern:
Oil markets remain in flux due to the energy war with China but both WTI and Brent crude are putting in small bouncebacks, the latter almost finishing above the $77USD per barrel level.
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. The potential for a new rally to form above the $77USD per barrel level from here is dwindling as recessionary fears mount:
Gold wanted to continue its surge above the $2900USD per ounce level but as I warned yesterday was well overextended and had a small dip overnight to just below that level.
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!