19th August 2015 Currency markets, news and analysis

Forex Market Commentary  

Firstly, the release of the data of the July minutes of the FOMC once and for all dashed any hawkish hope of an official 50 basis point increment. That's not going to happen at all. 25 basis points is a given so nothing changes there and US corproates would have welcomes that news alone if it weren't for an unfolding crisis of confidence unfolding in China and affecting the entire Asian region and on to Europe. Investor confidence is starting to sag on a global scale and it's epicenter is China. Asian equities took a tumble today and led to falls in Europe with the Euro Stoxx50 closing 65 points down to close at 3432.00 and a big Wall Street sell off. The Dow closed down -162.61 points and -0.93% following earlier slides in Asian markets with th Nikkei 225 and Hang Seng Index bearing the brunt as China stutters on with investors thinknig about an exit prior to the close of the year 2015.  Consumer sentiment is weakening in Asia. In late July 2015 the SSE Composite was standing tall at the 4123 mark attempting to consolidate a bearish rout which started in June when investors started to panic at the 5000 mark and pile out of Chinese equities. Ever since then crude oil has dropped into free fall from the high 50's to close at 40 Dollars on the front end WTI today.What a difference a mere 4 weeks makes! the China crisis has dragged the Hang Seng and Nikkei down deepening the Asian loss of confidence as investors pull out of Asian equities across the board and pile into US Treasuries and USD. Gold saw some good gains climbing steadily on the wake of loss of confidence in equities. EUR/ USD rose to the 1.11 once again as a technical bounce and more due to short covering of weaker shorts in the market as a sign of specs pulling out their massive shot position ahead of the FOMC next meeting and discussion on interest rates. the blood-letting can take the EUR/ USD to the 1.13 but anything higher is unrealistic given fundamental points of economic divergence.

Well, what is going on? it all really boils down to the consumer. Corporations do not exist without the purpose of serving the consumer.

Currency markets will always exist so long as the world is populated with different nations with different currencies which become a medium of exchange as goods and services are exported across national boundaries.

At the very heart of the level of international trade is the Consumer. The consumer is KING. A moribund economy with low levels of aggregate demand reflects problems in the labor market and disposable income to generate the individual consumer demand for everything from English Liptons tea to  Chinese Jasmine. Corporations strive to provide goods and services and make a profit and thrive when credit markets allow cheap financing in order that customer demand can be satisfied. But what happens when the consumer vanishes? Sales go down and investors in equities get very nervous. It is a circle. Should the consumer cease demand for butter in place of a cheaper substitute like margarine then all the credit in the world cannot prop up the butter making industry unless the consumer can achieve a high level of disposable income to afford a more expensive butter. Apple Inc cannot succeed if consumers start looking for cheaper substitutes because the level of their affordable income dictates that an i-phone is way out of reach. Thus at the heart of the issue of global macro-economics and the behavior of currency movements is the micro-economic analysis of the American, European, Japanese and the Chinese consumer;  and right now this very moment in time, only the USA can boast an economy at full employment at 5.3% unemployment with an inflationary pressure that generates demand for US investment and thereby the demand and purchase of the US Dollar. Hence the inevitable fundamental data support for the USDX to go through the 100 mark by the end of the year.

Read on Bloomberg today this alarming article which is threatening to sink the global economy and may eventually push crude oil down to 35 Dollars. The China domino is threatening to become a global contagion:

http://www.bloomberg.com/news/articles/2015-08-19/china-s-newest-make-or-break-level-for-stocks-is-shanghai-3-500 

The shorts are in play in China and large spec action forcing the SSE down may result in global equities going into pandemonium and a crash in US equities. That action would seriously affect the Fed's decision on interest rates.


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
96.370     -0.084 -0.11%
Support 95.839 Resistance 97.015
Forward 1 year - 97.273s.

EUR/USD
1.113800     +0.000225 +0.02%
Support   1.10487      Resistance 1.12307
Forward 1 year - 1.14160s.  

Crude Oil  WTI

40.96     -0.31 -0.72%

Support 40.66  Resistance  43.88
Forward 1 year - 51.17s.

Gold

1138.150     +3.400 +0.30%

Support  1,105.3     Resistance 1,123.5
Forward 1 year  -  1,119.1s.

Pieter Bergli - DeLoren Trust Holdings

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