21st August 2015 Currency markets, news and analysis

Forex Market Commentary  

Well there is no nice way of putting it at all - Massacre! as per my analysis last week fund managers globally decided to get our of China and that action itself led to a sequence of dominoes that quickly became a global crash in equities from Shanghai to New York. Collectively, 3.3 Trillion US Dollars in value has been wiped out in equity prices as stock markets round the globe watch the values of it's top corporates sink in a tsunami wave of dread and anxiety rippling across every trading floor.

Read on Bloomberg here:

http://www.bloomberg.com/news/articles/2015-08-20/asian-futures-fall-amid-u-s-stock-selloff-as-oil-mired-in-slump 

Currency devaluations in the modern closely integrated world do not work. Period. China's inept, misguided action has caused global consternation.

The PBOC in tampering with the daily fix in earnest sought this currency devaluation as a solution to increase domestic GDP. But the argument that a lower currency increases exports today is fodder in itself for a complicated thesis and ample illustration that it does not. On the contrary as I suggested last week; currency devaluations lead to capital outflows and that is exactly what has happened with global traders piling out of Chinese and Asian equities and Europe thence to USA. devaluing the Yuan is not going to see Dollar General and Wallmart increases it's inventory to service a middle class American economy. Currency devaluations do not necessarily lead to domestic employment increases. On the contrary, loss of market capitalization leads to weaker credit standing and eventual job lay-offs. if anything the PBOC action has backfired and may now shave off considerable domestic retail sales and affect the domestic housing market even more as Chinese consumers see their purchasing power for expensive foreign goods diminished. Thus the Yuan has lost all serious credibility to become a stable reserve currency given the pandemonium it has caused by wiping trillions of Dollars in value in equities globally. Like India, China has to open up to the new order of internationalization of corporations. Corporations investing in China brings much-needed capital, hires people, and raises the domestic standards of living. With billions of dollars in market cap wiped out off Chinese equities perhaps policy-makers can learn from this mistake to more closely integrate with the global community of central bankers to stabilize exchange rates and allow the free outflow and inflow of capital. The key to economic  success is full employment.

Watch the following video from the Economic Policy Institute on the reasons why wages are core for successful economic growth:

In the context of our analysis of the FX markets; the 4 main pillars of study - The USD, by virtue of being the 'international' currency of global choice, the 'Euro' being the second most trade-able currency, crude oil as a barometer of economic activity and gold as an economic store of value have all been affected this week by the massive loss of confidence in Chinese equities this week. The reason why we take such a comprehensive perspective of markets is because they are all inter-linked in the modern world. You cannot analyze a single market without consideration of immediate and indirect influences.


Important Indicators:

Equities:

Dow Industrial    16459.75   Down  530.94 (-3.12%)
Euro STOXX50 3227 Down 129.00 (3.84%) 
Nikkei 225   19,435.83 Down 597.69 (2.98%)
SSE Composite Index    3,507.74 Down 156.55 (4.27%)
Hang Seng    22,409.62 Down 347.85 (1.53%)


Fixed Income Markets:

US - 30 DAY FED FUND    99.770    Up 0.010    +0.01%   
US - 10 YEAR T-NOTES    128.671875  Up  +0.421875    +0.33%
ECB Base rate 0.050 %
Chinese interest rate PBC     China     4.850 %
Japanese interest rate (BoJ)    0.10 %


Important moving averages:

USDX  below the 50 day m.a 96.
EUR/ USD above 50 day m.a at 1.10
Crude Oil WTI below 50 day m.a. at 50
Gold above 50 day m.a. at 1140
US - 30 DAY FED FUND above 50 day m.a. at 99.75
US - 10 YEAR T-NOTES above 50 day m.a at 126.8

Overall reflection: USDX, nothing there at all: lacks the Q3 data for the next big push if at all now as we try to rationalize the revenue losses for US corporates, EUR/USD holding it's ground firmly only in the wake of the Chinese crisis. Crude Oil stabilizing at the 40-45 channel in spite of the murder in Asian equities and Gold bounced as investors sought safety with the weekend closing. Small trader's contemplating longer time horizons on EUR/ USD be wary. the latest COT reports ( see here -   http://www.cotpricecharts.com/commitmentscurrent/    )  demonstrates that large specs are 161k over 68k shorts to long in currency futures and we do not know how many otc options are out there lurking at the 105 mark puts or calls at the 115. Yes we are getting dangerously close to some serious ground at the 115 mark but the fundamentals for the EUR/USD are just not there so any long trade has to be quick and hedged as the closer we get to 115 the more likely a failed breach of the mark will lead to a rapid setback. However US bond futures demonstrate a preponderance of longs over shorts indicating a bullish outlook that US bonds are set to rise once again in the wake of a slowing economy.

In speaking of moving averages; markets are not rational and daily price action volatile, but in the longer run trader expectation and negative sentiment can be collectively summed up through the 50 day moving average. 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
94.815     -0.954 -1.23%
Support 94.212 Resistance 96.202
Forward 1 year - 95.740s.

EUR/USD
1.1387     0.0000 0.00%
Support   1.11673          Resistance 1.14893
Forward 1 year - 1.14570s.  

Crude Oil  WTI

40.24     -1.08 -2.64%

Support 39.03  Resistance  42.11
Forward 1 year - 46.68s.

Gold

1160.7     0.0 0.00%

Support  1,139.2     Resistance 1,177.0
Forward 1 year  -  1,165.5s.

Pieter Bergli - DeLoren Trust Holdings

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