4th August 2015 Currency markets, news and analysis

Forex Market Commentary  

Summer drives are here; Q3 is upon us but are US companies hiring fresh graduates for full term employment contracts and dishing out part-time ice-cream vendor jobs for the teens? what exactly is going on with the world's biggest economy in this all important month of August 2015?

Whilst the USD continues in a limbo undecided of the next major move against the basket of major currencies the EUR/ USD breakout above the 1.09 failed and so now were drifting back down to the 1.08 with the Euro longs licking their wounds. Until some major US inspiring news appears or major US negativity then we are range-bound on the EUR/USD 1.08-1.10 for the moment in a  very tight 200 pip channel. it's quite impressive how the Euro currency is able to withstand spec pressure considering that the CFTC’s COT report last week showed that there were still about 104.0K net-short Euro positions held by large specs for the week ending July 28, 2015. That's still a huge position and week by week specs are beginning to realize that they have jumped the gun by pricing in an official 25 basis point rate hike by summer this year; hence short covering at every opportunity is responsible of the rise in the EUR/ USD. Given that data is showing a slow down of the US economy and analysts now pricing in a January 2016 rate hike large specs will be looking to cover short positions as much as they can until the end of the year and look for a second opportunity to re-enter short positions. Even though the US economy appears to be slowing down the real enticing question now is on the other side of the planet concerning China, the Yuan and a massive 3.5 trillion Dollar currency reserve that maybe called into action. China has a problem; it is experiencing the slowest economic growth rate since the last 25 years at an annual 7% GDP growth. That is unacceptable for impatient Chinese policy makers who are now considering one of two possible actions, or both to stimulate the economy, and will both have an impact on the value of the US dollar with a bias towards appreciation. 

A new factor to consider with the USD: China.

Firstly, China is largely an export driven market and to compete the Yuan may have to be devalued. That action will leave the USD exposed to Chinese investment which may drive the value of the USD upwards. Secondly, rate cuts may be needed to stimulated domestic growth in China which will again assist in devaluing the Yuan as more dollars are sought for investment; the likely parking lot being the short end of the US Treasury market which would see prices bid and rates knocked down. Either way there is a lot at stake in the currency markets and its all to do with timing. Thus large specs on the net short side may short cover seeking re-entry with any signs that the Chinese may attempt to seriously stimulate their economy by buying Dollars. The EUR/ USD has held well for now against the onslaught of specs given the Greek enigma but now there's a new factor emerging from the clouds and the sheer magnitude of this factor may be enough to drive EUR/ USD to parity and USDX through the 100 mark early 2016 even if the US economy slows down some more. This new factor becomes the new piece of news on top of the Fed watch which may help specs decide the next breakout period in the currency markets.  At some point the Yuan will become a reserve currency:

http://www.bloomberg.com/news/articles/2015-08-04/imf-says-more-work-needed-before-yuan-reserve-currency-decision

All this Dollar talk is really hurting the commodities markets whose physicals are nearly all quoted in US Dollars.

http://www.bloomberg.com/news/articles/2015-08-04/the-devastation-in-global-commodity-currencies-is-far-from-over 

Gold may drift lower and crude oil may consolidate once again at the 40's level should Chinese policy makers inspire confidence and calm the fears in the market about crude oil futures consumption. The question remains how much more lower can commodity prices sink once the first rate hike officially appears?

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
98.174     +0.236 +0.30%  
Support 95.830 Resistance 98.530
Forward 1 year - 98.344s.

EUR
1.08795     -0.00595 -0.54%
Support   1.08123      Resistance 1.12003
Forward 1 year - 1.10760s.  

Crude Oil  

45.95     +0.21 +0.46%

Support 44.56   Resistance  48.40
Forward 1 year - 53.50s.

Gold

1086.795     +3.895 +0.36%

Support  1,068.7     Resistance 1,115.5
Forward 1 year  -  1,101.4s.

Pieter Bergli - DeLoren Trust Holdings

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