Inter Market Analysis – 5th August

Risk On

  • European equities shore higher – Euro Services PMI with German data better than expected
  • Chinese Caixin Services PMI better than expected – cooked?
  • Resumption of dollar strength is impressive after traders flip coins on Fed Lockhart’s comments
  • Dollar strength – weaker Eur – Bunds not responding though

Risk Off

  • Commodities sector remain in danger of further weakness with China languishing
  • UK service PMI weaker and Eurozone retail sales also came in worse than expected
  • Saudi Yemen – Middle East instability / UK extends Iraqi air campaign
  • FED & BOE imminent rate hike – without an increase in personal income is a disaster?
  • Apple and Disney shares tanked lower
  • Old but still prevalent – Athens stock exchange continue lower
  • China and Hong Kong stocks still jittery despite support measure
Threat of deflation – Price cutting – Companies looking to restructure/consolidate – M&A all about reducing competition – we call REAL ORGANIC GROWTH??

European equities are ignoring all negative news-driven on the back of a risk on effect but based on what??

Multi Time Frame Analysis

USD index

Daily

4 hour

Lockhart commentary managed to stop the dollar from heading lower. Traders flip to long dollar on expectation for a September rate hike – and dollar is saved again – not having to trade with a close below the 20 ma. The timing was just amazing but we are cautious that the economic calendar could determine the next directional play. With the daily RSI heavily diverging-this suggest that we could see a short term pullback on the dollar – potential support lies on the megaphone pattern as shown on the 4 hour chart. With a glut of poor economic data – questions have been raised if a September rate hike is good to go? This week employment numbers could be the catalyst.

German Bund

Daily

4 hour

We have been questioning the trajectory of the price action in the Bunds for a while and despite the recent pullback, it will take a hard break below the uptrend line to take prices lower. A break below the trend line will allow us to short and target potentially the 4 hour 100 and 200 ma. The Bunds could be an early signal that Euro coming to support and could head higher – with the Dax potentially heading lower.

If Bunds come to resistance, expect EUR/USD to come to support and potentially a viable trade to long Euro if and when dollar hit resistance and create a swing high failure.

Eur/Usd

Daily

4 hour

After a strong start, Euro gave back most of its gains and retreated after a dollar resumption. At the moment, Euro found support – a higher low from the purple trend line that has been tested 4 times and if this breaks below then things will get ugly quick. Only a break above the red trend line (see daily) will give Euro a boost higher – all eyes on the dollar index – Bunds are into resistance so something is brewing up.

German Dax

Daily

4 hour

7 consecutive days of buying on the Dax and across other European equities – ignoring all risk off news has certainly cast an eye that this rally is strong. The bear flag is void after a run up higher – thus we cannot rule out a retest of resistance at 38.5% of the recent high to low. Otherwise, a spike to the upper blue channel line at 11700+ levels.

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