Sive Morten
Special Consultant to the FPA
- Messages
- 18,708
Fundamentals
(Reuters) Australian shares closed on Friday at their lowest in more than a week, as a stronger U.S. dollar hurt precious metal miners and oil stocks.
The dollar stood near a 14-year peak, after the Federal Reserve tightened monetary policy and as global markets continued adjusting to the idea of higher interest rates.
The S&P/ASX 200 index shed 0.1 percent or 5.677 points to close at 5,532.9. The benchmark lost 0.5 percent on the week.
Gold stocks were worst hit with most major producers adding to the losses on the index. Resolute Mining Ltd closed more than 10 percent lower while Newcrest Mining Ltd fell 4.7 percent. The benchmark index ended at its lowest level since March 2016.
Energy stocks drifted lower weighed down by an overnight decline in oil prices. Shares of Beach Energy Ltd closed nearly three percent lower and Caltex Australia Ltd shed more than three percent.
Gold rose on Friday, climbing above the prior session's 10-1/2 month low, as the dollar and U.S. stocks dipped at the end of a volatile week highlighted by the Federal Reserve's signal that there could be more rate hikes than previously expected in 2017.
Spot gold was up 0.6 percent at $1,135.16 an ounce by 2:30 p.m. EST (1930 GMT). The metal hit $1,122.35 on Thursday, its weakest since Feb. 2 and is down 2 percent so far this week, leaving it on track for its sixth consecutive weekly loss.
U.S. gold futures settled up 0.7 percent at $1,137.40. Gold prices rose to session highs after U.S. officials told
Reuters that a Chinese warship had seized an underwater drone deployed by a U.S. oceanographic vessel in the South China Sea.
"It gave gold a little bit of a boost but it was a knee jerk spike. It looks like both sides are trying to tweak each other, if you will," said Bill O'Neill, co-founder of LOGIC Advisors. "Today's something of a consolidation day across the board."
The dollar fell from the 14-year high against a basket of currencies reached on Thursday when markets
repositioned for a more hawkish U.S. central bank. "The rate hike this week from the Fed and the hawkish
outlook for next year leave a fairly negative picture for gold," ING commodity strategist Warren Patterson said.
Higher interest rates next year could propel the U.S. currency higher, making gold more expensive for non-U.S. firms.
"The nature of recent gold selling implies fresh shorting as well as liquidation," HSBC analyst James Steel said in a note. "The selling may not yet be exhausted." Highlighting investors' lack of appetite for gold are
physically backed gold exchange traded funds; holdings of the SPDR Gold Trust, the world's largest gold ETF, are down more than 10 percent since Nov. 9.
COT Report
Someday we've talked about situation on CFTC data chart of AUD. Although it shows massive closing of longs position on AUD, that is moderately bearish sentiment as open interest is moving down in a row with speculative net position. But we still do not see new shorts opening.
At the same time, as we've mentioned previously this fluctuations in speculative position do not lead to strong changes of AUD rate as you can see from picture below. Thus, it seems that opening of new shorts in particular, could lead to stronger action on AUD.
SPDR fund storages drops together with gold prices that confirms real money flows on a background of this process.
So, guys, if you let me, I bring my 2 cents on AUD situation. After election in US situation has changed significantly for AUD. Previously AUD was seemed as alternative to USD, some kind of safe haven with healthy interest rate, high credit rating currency. Right now situation has changed significantly. US economy shows strength and growing inflation, D. Trump intends to change fiscal policy and economical policy of US which significantly decreases role of high AUD rates in a light of coming Fed tightening.
Besides, Australia itself, based on last GDP report, shows signs of economy slowdown. AUD is highly correlatied with metals - as precious as basic (steel for example). Correlation stands around 70% or even greater. But prices right now are going down due USD strength. In medium term perspective this could lead to further AUD deppreciation. And we see some technical issues that also support this view.
Thus, again, we will take a look at AUD instead of gold, but through prizm of new geopolitical and financial reality.
Technicals
Monthly
Situation on monthly chart of AUD has changed slightly, especially after US elections. Our previous analysis was based on two major factors. Technical one has suggested upside bounce due reaching of strong, major 5/8 monthly Fib level and appearing there DRPO "Buy" pattern. While fundametal factor was a healthy interest rates in Australia and so-so Fed policy on rate hiking, especially when they have said on just 2 rate changing instead of 4.
As elections have happened, now more agressive Fed policy is expected, especially in 2017, more protectionism, more stimulus from Trump to domestic economy. This combination will become a headwind to AUD appreciation, especially on a background of some issues that we've specified in last research. As a result we see CFTC data that indicates more closing of long positions, we see changing rethoric from RBA that brings more dovish hints. And we see reflection of these events in current technical picture of AUD.
On monthly chart, as AUD has reached YPP early, in the beginning of the year - for the whole year it was not able to break it up. So 50% FIb resistance level has not been completed. Besides, right now AUD drops below YPP. This, in turn, could lead AUD lower to YPS1 level. Something of the same kind we saw on EUR, but there drop out from YPP has happened earlier than here. Although very soon we will get new yearly pivots, but they will be almost the same as now, because AUD spend whole year in tight range.
So this action could take a shape of double bottom (conservative scenario) or, even butterfly "buy" that has 2 extensions - 0.65 and 0.61 levels. Both stand around previous lows of 2008.
Still you could argue that recent action doesn't break yet chances on upside butterfly as well and AUD still could reach YPR1, at least until lows around 0.7150 holds. This is true, formally. But We see price action on weekly chart that mostly unspecific for bullish market. It leads us to conclusion that further drop has more chances than reversal up...
Weekly
What particular we do not like in recent action?
Take a look at weekly picture. Here we have clear reverse H&S pattern, and initially this was a pearl in our analysis that provided confidence in possible upside reversal, so everything was as it should to be. AUD was going to become a safe haven and replace US for investors in coming uncertainy of US elections, Middle East war, Separatistic sentiment in EU etc. But situation has changed as well as price behavior.
Take a look what AUD shows right around neck line. It has reached it, then has turned to long-term consolidation but was not able to break it up. In fact AUD was not able to pass through nearest 3/8 FIb resistance level and dropped. This is not the way how upside reversals and breakouts happen usually, right?
Now AUD stands below MPP, trend has turned bearish here. So, on weekly chart, major level is 0.7150 lows, bottom of right shoulder. As we've said above - it is important, since it keeps valid (at least theoretically) chances on appearing upside butterfly. But not only due this reason. This level is important also, because this is a key to massive drop. If AUD fails around right shoulder - it will drop below head's bottom and this will open road to previous lows around 0.68. Last week AUD has made another step in this direction...
Daily
Daily chart brings most important information for us. Here two major things that we sould pay attention to. First of all is "B" lows. This is the point, where even theoretical chances on upside rebound will be vanished as soon as market will pass through it. But what chances that this will happen?
To answer on this question we need to take a look at second subject. This is large AB=CD pattern (green). Take a look that market already has reached 0.618 target and shown minor upside retracement as respect of it. Right now AUD shows downward continuation and price already has dropped below 0.618 target. It means that currently market stands in extension stage and should continue action to next 1.0 target at 0.71 area.
0.71 AB=CD target stands below "B" lows and this fact significantly reduces chances on lows' survival. They are mostly doomed.
Also you can see lack of Fib levels here. The only real support will stand around 0.7210 area - major 5/8 level and MPS1. But it already has been tested once. AUD could take some brief around it, but this pause also should be temporal.
Actually the only reason why market hasn't dropped directly to 0.72 is daily oversold. Because, as you can see plunge was really fast within 3 sessions until market has not reached OS condition.
That's being said, we expect minor upside retracement to fade OS condition and then downward continuation:
4-hour
Here guys, again, you can see how useful market mechanics could be, if you understand it correctly. We didn't make any mistake with anticipation collapse on AUD as it has failed to pass through 0.7530 resistance and shown irrational behavior for bullish market.
Recent drop brings excellent background for DiNapoli B&B "Sell" pattern that we will be watching on next week. It matches perfect to daily picture and overall AUD analysis, that suggests some upside bounce due Oversold. 3/8 Fib level coincides with WPP and this is an area where B&B could start.
At the same time, you could trade B&B differently - either take profit by B&B per se, or use B&B as tool for short entry on longer perspectives, as it is suggested by daily analysis:
Conclusion:
Due changing geopolitical situation and force balance in US economy, AUD could meet strong headwind in medium-term perspective. This could press on AUD and lead it to previous lows around 0.68 area or even lower if monthly butterfly will be formed.
In shorter-term perspective we see bearish signs on AUD and expect that it will continue move down after some minor upside bounce on Mon -Tue.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
(Reuters) Australian shares closed on Friday at their lowest in more than a week, as a stronger U.S. dollar hurt precious metal miners and oil stocks.
The dollar stood near a 14-year peak, after the Federal Reserve tightened monetary policy and as global markets continued adjusting to the idea of higher interest rates.
The S&P/ASX 200 index shed 0.1 percent or 5.677 points to close at 5,532.9. The benchmark lost 0.5 percent on the week.
Gold stocks were worst hit with most major producers adding to the losses on the index. Resolute Mining Ltd closed more than 10 percent lower while Newcrest Mining Ltd fell 4.7 percent. The benchmark index ended at its lowest level since March 2016.
Energy stocks drifted lower weighed down by an overnight decline in oil prices. Shares of Beach Energy Ltd closed nearly three percent lower and Caltex Australia Ltd shed more than three percent.
Gold rose on Friday, climbing above the prior session's 10-1/2 month low, as the dollar and U.S. stocks dipped at the end of a volatile week highlighted by the Federal Reserve's signal that there could be more rate hikes than previously expected in 2017.
Spot gold was up 0.6 percent at $1,135.16 an ounce by 2:30 p.m. EST (1930 GMT). The metal hit $1,122.35 on Thursday, its weakest since Feb. 2 and is down 2 percent so far this week, leaving it on track for its sixth consecutive weekly loss.
U.S. gold futures settled up 0.7 percent at $1,137.40. Gold prices rose to session highs after U.S. officials told
Reuters that a Chinese warship had seized an underwater drone deployed by a U.S. oceanographic vessel in the South China Sea.
"It gave gold a little bit of a boost but it was a knee jerk spike. It looks like both sides are trying to tweak each other, if you will," said Bill O'Neill, co-founder of LOGIC Advisors. "Today's something of a consolidation day across the board."
The dollar fell from the 14-year high against a basket of currencies reached on Thursday when markets
repositioned for a more hawkish U.S. central bank. "The rate hike this week from the Fed and the hawkish
outlook for next year leave a fairly negative picture for gold," ING commodity strategist Warren Patterson said.
Higher interest rates next year could propel the U.S. currency higher, making gold more expensive for non-U.S. firms.
"The nature of recent gold selling implies fresh shorting as well as liquidation," HSBC analyst James Steel said in a note. "The selling may not yet be exhausted." Highlighting investors' lack of appetite for gold are
physically backed gold exchange traded funds; holdings of the SPDR Gold Trust, the world's largest gold ETF, are down more than 10 percent since Nov. 9.
COT Report
Someday we've talked about situation on CFTC data chart of AUD. Although it shows massive closing of longs position on AUD, that is moderately bearish sentiment as open interest is moving down in a row with speculative net position. But we still do not see new shorts opening.
At the same time, as we've mentioned previously this fluctuations in speculative position do not lead to strong changes of AUD rate as you can see from picture below. Thus, it seems that opening of new shorts in particular, could lead to stronger action on AUD.
SPDR fund storages drops together with gold prices that confirms real money flows on a background of this process.
So, guys, if you let me, I bring my 2 cents on AUD situation. After election in US situation has changed significantly for AUD. Previously AUD was seemed as alternative to USD, some kind of safe haven with healthy interest rate, high credit rating currency. Right now situation has changed significantly. US economy shows strength and growing inflation, D. Trump intends to change fiscal policy and economical policy of US which significantly decreases role of high AUD rates in a light of coming Fed tightening.
Besides, Australia itself, based on last GDP report, shows signs of economy slowdown. AUD is highly correlatied with metals - as precious as basic (steel for example). Correlation stands around 70% or even greater. But prices right now are going down due USD strength. In medium term perspective this could lead to further AUD deppreciation. And we see some technical issues that also support this view.
Thus, again, we will take a look at AUD instead of gold, but through prizm of new geopolitical and financial reality.
Technicals
Monthly
Situation on monthly chart of AUD has changed slightly, especially after US elections. Our previous analysis was based on two major factors. Technical one has suggested upside bounce due reaching of strong, major 5/8 monthly Fib level and appearing there DRPO "Buy" pattern. While fundametal factor was a healthy interest rates in Australia and so-so Fed policy on rate hiking, especially when they have said on just 2 rate changing instead of 4.
As elections have happened, now more agressive Fed policy is expected, especially in 2017, more protectionism, more stimulus from Trump to domestic economy. This combination will become a headwind to AUD appreciation, especially on a background of some issues that we've specified in last research. As a result we see CFTC data that indicates more closing of long positions, we see changing rethoric from RBA that brings more dovish hints. And we see reflection of these events in current technical picture of AUD.
On monthly chart, as AUD has reached YPP early, in the beginning of the year - for the whole year it was not able to break it up. So 50% FIb resistance level has not been completed. Besides, right now AUD drops below YPP. This, in turn, could lead AUD lower to YPS1 level. Something of the same kind we saw on EUR, but there drop out from YPP has happened earlier than here. Although very soon we will get new yearly pivots, but they will be almost the same as now, because AUD spend whole year in tight range.
So this action could take a shape of double bottom (conservative scenario) or, even butterfly "buy" that has 2 extensions - 0.65 and 0.61 levels. Both stand around previous lows of 2008.
Still you could argue that recent action doesn't break yet chances on upside butterfly as well and AUD still could reach YPR1, at least until lows around 0.7150 holds. This is true, formally. But We see price action on weekly chart that mostly unspecific for bullish market. It leads us to conclusion that further drop has more chances than reversal up...
Weekly
What particular we do not like in recent action?
Take a look at weekly picture. Here we have clear reverse H&S pattern, and initially this was a pearl in our analysis that provided confidence in possible upside reversal, so everything was as it should to be. AUD was going to become a safe haven and replace US for investors in coming uncertainy of US elections, Middle East war, Separatistic sentiment in EU etc. But situation has changed as well as price behavior.
Take a look what AUD shows right around neck line. It has reached it, then has turned to long-term consolidation but was not able to break it up. In fact AUD was not able to pass through nearest 3/8 FIb resistance level and dropped. This is not the way how upside reversals and breakouts happen usually, right?
Now AUD stands below MPP, trend has turned bearish here. So, on weekly chart, major level is 0.7150 lows, bottom of right shoulder. As we've said above - it is important, since it keeps valid (at least theoretically) chances on appearing upside butterfly. But not only due this reason. This level is important also, because this is a key to massive drop. If AUD fails around right shoulder - it will drop below head's bottom and this will open road to previous lows around 0.68. Last week AUD has made another step in this direction...
Daily
Daily chart brings most important information for us. Here two major things that we sould pay attention to. First of all is "B" lows. This is the point, where even theoretical chances on upside rebound will be vanished as soon as market will pass through it. But what chances that this will happen?
To answer on this question we need to take a look at second subject. This is large AB=CD pattern (green). Take a look that market already has reached 0.618 target and shown minor upside retracement as respect of it. Right now AUD shows downward continuation and price already has dropped below 0.618 target. It means that currently market stands in extension stage and should continue action to next 1.0 target at 0.71 area.
0.71 AB=CD target stands below "B" lows and this fact significantly reduces chances on lows' survival. They are mostly doomed.
Also you can see lack of Fib levels here. The only real support will stand around 0.7210 area - major 5/8 level and MPS1. But it already has been tested once. AUD could take some brief around it, but this pause also should be temporal.
Actually the only reason why market hasn't dropped directly to 0.72 is daily oversold. Because, as you can see plunge was really fast within 3 sessions until market has not reached OS condition.
That's being said, we expect minor upside retracement to fade OS condition and then downward continuation:
4-hour
Here guys, again, you can see how useful market mechanics could be, if you understand it correctly. We didn't make any mistake with anticipation collapse on AUD as it has failed to pass through 0.7530 resistance and shown irrational behavior for bullish market.
Recent drop brings excellent background for DiNapoli B&B "Sell" pattern that we will be watching on next week. It matches perfect to daily picture and overall AUD analysis, that suggests some upside bounce due Oversold. 3/8 Fib level coincides with WPP and this is an area where B&B could start.
At the same time, you could trade B&B differently - either take profit by B&B per se, or use B&B as tool for short entry on longer perspectives, as it is suggested by daily analysis:
Conclusion:
Due changing geopolitical situation and force balance in US economy, AUD could meet strong headwind in medium-term perspective. This could press on AUD and lead it to previous lows around 0.68 area or even lower if monthly butterfly will be formed.
In shorter-term perspective we see bearish signs on AUD and expect that it will continue move down after some minor upside bounce on Mon -Tue.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
