Forex Market Commentary
China PBOC cut the Yuan reference rate 1.9, 1.6 and 1.1% Now what? USDX holds its ground at the 96 level unshaken and the EUR/USD shows enough confidence to hold the high ground of 1.11 region. The market has shrugged it off already. We have seen this lesson before on Central bank operations going awry in the Foreign Exchange markets. Back on Black Wednesday 1992 when the British Exchequer was forced into a series of interest rate hikes the highly expensive moves came to no avail. Please refer here:
This is not the 1950's where large industrial nations can hope to export their way out of a deflationary spiral and low prospects of economic growth. devaluing the Yuan is not going to cause pandemonium as customers rush to Dollar General to buy 'made in China' products. The US and European markets have such developed domestic consumer dynamics that the drop in the Yuan rate in terms of international trade is not going to affect the USA and Europe. on the contrary the push for a lower Yuan by the PBOC may prove controversial if it leads to large capital outflows from the domestic equities markets and international investors pull out their holdings. The true heart of the Chinese slow-down is about a domestic credit bubble and an inflated housing market much on the parallel of the US collapse in 2006 allbeit with less transparency concerning bad debt on the books of local bankers. With Europe and USA the heart of the market is the consumer; hence the Fed's effectual Q.E program, providing cheap credit, employment increases, housing market stability and domestic consumer demand on main street. Europe is at the beginning of it's own QE program to buy back bonds, cheapen credit, help equities markets and deliver to the consumer prospects of employment and increase retail sales. The key solution for China is not a currency devaluation but a serious rethink how to inflate the real purchasing power of the Chinese consumer.
Read on Bloomberg:
That being said, USDX in a holding pattern waiting for the Fed September rate decision and EUR/ USD gaining temporary ground with shorts covering position but likely to resume the slide towards the 1.05 mark and perhaps parity next year as key policy issues diverge between the USA and Europe with the setting of interest rates due to the differing stages of economic cycle between the 2 economies.
Asian equities are over the PBOC shock now and stabilizing as well as European equities being more or less flat.
Crude oil WTi cash is holding the fort at the 44 mark in spite of the Iran factor; that being accounted for now the stage has been set for a new channel of 45-55 trading range for the rest of the year. The fact that China devalued it's Yuan now makes the purchase of crude oil 5% more expensive and that remains to be seen how that plays out in terms of Chinese stockpiling and inventory levels by Christmas 2015.
Gold has a problem. Yes China caused a flight to safety but overall there is a huge question mark of the value of gold as a safety measure per se ie. it's losing it's rationale. Today gold is about 9.5% down since the beginning of this year 2015. A press release in China about 3 weeks ago revealed that China was actually buying only about 100 mt tons for 2015 and that completely doused all the rumors that China was hoarding everything. further analysis revealed that it wasn't mere verbal mind-games but the figures actually stand in reality as more or less correct. Take that away plus central banks round the world less inclined to hold large gold reserves does not augur well - BUT THE RUMOR, SELL THE FACT - if China's not buying who will? and where is the next bottom?
Always look to support and resistance band lines as the key to understanding in the long and short term where prices are converging. Professional technical traders use 50 day and 200 day medium and slow moving averages as fundamental cornerstones for interpreting the direction of price action.
USDX
US Dollar
96.363 +0.008 +0.01%
Support 95.830 Resistance 98.530
96.363 +0.008 +0.01%
Support 95.830 Resistance 98.530
EUR/USD
1.11555 +0.01030 +0.93%
Support 1.08123 Resistance 1.12003
1.11555 +0.01030 +0.93%
Support 1.08123 Resistance 1.12003
Crude Oil
42.75 -0.23 -0.52%
Support 44.56 Resistance 48.40
Gold
1113.85 -0.20 -0.02%
Pieter Bergli - DeLoren Trust Holdings
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