Macro Morning

Advertisement

Risk markets did not like the “soft but not too soft” US jobs print on Friday night with their initial reaction flipping into risk-off mode halfway through the session as Wall Street tanked and the USD soared back into strength. Treasury yields eventually only finished slightly down while currency markets absorbed volatility around the print with Yen making a new high while Euro gave up all its gains for the week. The Australian dollar was a large casualty due to the drop in commodity prices as it fell below the 67 cent level.

10 year Treasury yields closed just 1 or 2 points lower at the 3.7% level while oil prices fell further after being weak all week as Brent crude crossed below the $72USD per barrel level. Gold also dropped more than $20 after recently making better headway to return below the $2500USD per ounce zone.

Looking at markets from Friday’s session in Asia, where mainland Chinese share markets pulled back sharply with the Shanghai Composite down more than 0.8% to 2785 points while the Hang Seng Index was able to close dead flat at 17444 points.

The Hang Seng Index daily chart was starting to look more optimistic a few months back but price action has slid down from the 19000 point level and continues to deflate in a series of steps as the Chinese economy slows. A few false breakouts have all reversed course and another downside move is again looming here as price action just can’t clear short term resistance:

Advertisement

Japanese stock markets meanwhile are still taking the biggest hits with the Nikkei 225 closing 0.7% lower to 36391 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 is coming back so a sustained return above the 38000 point level from May/June just doesn’t seem possible now as futures indicate a rollover to start the week in a bad position:

Advertisement

Australian stocks were the best in the region again with the ASX200 closing 0.4% higher at 8013 points, finishing just above the coveted 8000 point level.

SPI futures however are down more than 1% due to the slump on Wall Street from Friday night. Short term momentum and the daily chart pattern was potentially signalling a top here and this combination could still eventuate, as support at or just below the 8000 point level looks like evaporating:

Advertisement

European markets remained in negative mode with broad losses across the continent as the Eurostoxx 50 Index closed 1.3% lower to 4738 points.

The daily chart shows price action off trend after breaching the early December 4600 point highs with daily momentum retracing well into an oversold phase. This was looking to turn into a larger breakout with support at the 4900 point level quite firm with resistance just 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 gone into full reverse turning this pullback into a selloff:

Advertisement

Wall Street did not like the not too soft NFP one little bit with tech stocks leading the selling as the NASDAQ eventually finished more than 2.5% lower while the S&P500 lost more than 1.7% to close at 5408 points.

The daily chart illustrates how the inability to clear the 5600 point level in mid August and even match the July highs is setting up for a significant retracement that could end up at the 5100 point level as the Fed punchbowl is taken away. Watch for momentum to cross into oversold conditions next:

Advertisement

Currency markets initially interpreted the soft NFP print has an expectation of a 50bps rate cut coming from the Fed but comments and further insight saw this fade away as the USD regained strength, sending most of the majors down against King Dollar with Euro falling back below the 1.11 handle.

The union currency had been structurally supportive despite the start of week extended dip that reversed on built in expectations of this soft jobs print, with those expectations dashed and then some on the night! Watch now for some stability to return at or around the 1.11 level:

Advertisement

The USDJPY continued to fall with yet another downside session on Friday night with some intrasession volatility but still in a sustained downtrend to finish well below the August lows at the mid 142 level.

The overall volatility leading up to the recent rout spoke volumes as it pushed aside the 158 level as longer term resistance in the weeks leading up to the BOJ rate hike. Momentum was suggesting a possible bottom was brewing as the BOJ wants to get this under control with this breakout building, but this retracement is coming faster than expected:

Advertisement

The Australian dollar had been pushing higher on the weaker USD but it finally broke its short term uptrend on the previous Friday night, retreating below the 68 cent level and basically went nowhere during the week. It fell out of bad post the NFP print and has made a new monthly low to settle below the 67 handle in a very weak position.

During June the Pacific Peso hadn’t been able to take advantage of any USD weakness with momentum barely in the positive zone but that has changed in recent weeks with price action finally getting out of the mid 66 cent level that acted as a point of control. This positivity has disappeared with a full retracement of the last two weeks of weak price action, sending well below the 67 cent level with the potential to fall further:

Advertisement

Oil markets remain in sell mode as they couldn’t get out of their previously weak position with Brent crude again moving lower to extend below the $72USD per barrel level making another new monthly low in the process.

After breaking out above the $83 level last month, price action had stalled above the $90 level awaiting new breakouts as daily momentum waned and then retraced back to neutral settings. Daily ATR support had been broken with short term momentum still in negative territory, setting up for this sharp retracement – watch out below:

Advertisement

Gold has been unable to get back above the $2500USD per ounce level since the start of the week slump and also failed to move beyond last week’s highs although a false breakout just after the NFP print saw it breach the $2520 level before a full retracement to end the week below $2500 instead..

The longer term support at the $2300 level remains firm while short term resistance at the $2470 level was the target to get through last week and could be where it ends up as more volatility is expected this week:

Advertisement

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

Advertisement

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)

Advertisement

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!