26.05.23 Macro Morning

The continued US debt ceiling negotiations kept risk markets in hesitation mode overnight on both sides of the Atlantic again although a late reprieve saw a mild boost with a rush to tech stocks helping lift Wall Street at the end. Currency markets continue to flow to the safety of USD with Euro smacked well below its previous weekly low while the Australian dollar continues to collapse under the weight of the Federal Reserve’s intentions, heading straight to the 65 cent level.

Meanwhile US Treasury yields lifted on job markets news with the 10 year extending 5 pips above the 3.7% level while oil prices took back all of their recent breakout with Brent crude sharply reversing back down to the $76USD per barrel level. Gold followed the lead of the other undollars and was sold off swiftly to the $1940USD per ounce level.

Looking at share markets in Asia from yesterday’s session where mainland Chinese share markets sold off again but the Shanghai Composite recovered some ground at the close to finish only 0.1% lower at 3201 points while the Hang Seng was in full rout, down nearly 2% to break through the 19000 point level, closing at 18746 points.

The daily chart has been showing resistance building above at the 20500 point level as price action wants to return to the start of year correction phase below 19000 points with a failure to make any new weekly highs since early April. This looks poised for another breakdown at the 19000 point level if it can’t clear those levels soon – thankfully the market is closed today for a long weekend!

Japanese stock markets however did not join in on the selling fun with the Nikkei 225 actually closing 0.4% higher at 30801 points helped by a weaker Yen. Futures are indicating a further small selloff on the open however that could push back above the 31,000 point level.

This trend had been unsustainable with price action nowhere near the low moving average area for several sessions, indicating that overall risk sentiment was very one sided and could result in a violent pullback. Trailing ATR support kept ratcheting higher as the 30000 point level is breached with daily momentum now reverting from extremely overbought mode but still very well supported, particularly by a weaker Yen:

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Australian stocks were in full flight mode as well with the ASX200 closing more than 1% lower at 7136 points.

SPI futures are down around 0.1% given the bounce on Wall Street overnight but it remains to be seen if the market can recover this weeks losses. Daily momentum is now firmly in the negative zone as price action breaks to the downside for almost a new monthly low.

The upside target in the medium term was the April highs at 7400 points but this looks unattainable as price action has been unable to break above the high moving average band with movement towards support instead at the 7100 point area the next phase:

European markets were again in strong selling territory with broad losses across the continent although the Eurostoxx 50 Index recovered to close 0.1% higher to 4269 points.

The daily chart was showing a clear breakout here after price action was caught between strong trailing ATR support at the 4200 point level and weekly resistance at the 4350 points level, but the previous bearish engulfing candle more than suggested a bull trap. I warned that any hiccups in the risk complex could see a strong pullback to the 4300 point level or lower with all eyes on ATR support at the 4200 point area:

Wall Street initially sold off across the board but recovered later in the session, although the Dow remained in negative territory as the NASDAQ bounced some 1.7% higher while the S&P500 gained nearly 0.9% but is still well below the 4200 barrier level, finishing at 4151 points.

The four hourly chart shows how the recent falls found support just above the 4100 point level with this bounce now trying to get back above resistance at the high 4100 point level. The failure to push through medium term resistance has kept the market in check with a series of lower highs showing a lack of conviction while the debt ceiling negotiations drag on – this could get ugly:

Currency markets remain set on their dominant USD trend as the impasse on the US debt ceiling continues amid lower than expected US jobless claims, giving another boost to the mighty King Dollar. Euro was again pushed down to almost break below the 1.07 handle for yet another daily low as the weekly downtrend remains intact.

Short term momentum on the four hourly chart shows a continuation of oversold settings as resistance has properly shifted to former support below the 1.09 level with more downside potential building:

The USDJPY pair however continues to see an uplift with the 140 level breached overnight. This breakout had been getting quite unsustainable as price action moved further away from its own high moving average and short term momentum became nearly extremely overbought. A consolidation back down to trailing ATR support is over before it even started with price action now above those overbought highs and likely to extend further as momentum remains overbought:

The Australian dollar in contrast remains totally depressed here, breaking down well below the 66 cent level against USD to make a new monthly low and almost breakthrough the 65 handle where it sits this morning.

Last week’s higher than expected unemployment print plus continued strong comments from the FOMC minutes can’t help the Pacific Peso, which continues to reject previous overhead resistance at 67 cents as this move could extend well below the 65 cent level:

Oil markets are trying to get out of their sideways funk but suffered a reversal again overnight due to the higher USD with Brent crude moving back down to the $76USD per barrel level, failing to build on the recent series of new daily highs.

This again reverts price back to the December levels (lower black horizontal line) after breaching trailing ATR support previously with daily momentum getting out of oversold mode. A proper reversal will require a substantive close above the high moving average here on the daily chart before threatening a return to $70 or lower:

Gold is still in a major decline phase after failing to recover from its pullback following the US unemployment print with its breakdown below the psychological $2000USD per ounce level. Last night saw a break of the previous weekly lows to finish at the $1940 level.

The keeps price action on a downpath with short and medium term momentum sustained within the negative zone. The daily chart shows this breakdown quite clearly:

 

Written By: Chris Becker