Inter Market Analysis – 10th August

Risk On

  • Greek stocks rose with talk of imminent 3rd bailout
  • China stock exchange limit up – Government propose mergers (more to come)
  • Asian economies will need to do more – expect more stimulus
  • Asian shares in general rose  with Nikkei closes up as weakness in Yen kicks in
  • Asia open with dollar weakness but revived higher into London open
  • Increase in Iron Ore import to China – strong demand?
  • Potential M&A over the summer

Risk Off

  • China weekend data came in weaker – expect further stimulus?
  • Turkey terrorist attack – political instability
  • More car bombs in Kabul
  • EURO sentix investor confidence down with Japanese consumer confidence also lower
  • China see deflation as risk – admit overcapacity and weak domestic economy
  • Talk of property bubble in Australia – a repeat of 2008?
China limit up-Government looking to merge companies to restore confidence

Slow global demand is a concern – China sputtering – other emerging economies need to do more

Expect a paradox between US and UK economy that looks to taper while Europe and emerging economies continue to print

More printing and fiat currencies in the global economy – with money supply from central banks – stocks in those regions should be stable but all eyes on US stocks

Multi Time Frame Analysis

USD index

Daily

4 hour

Last week take on the dollar index “The 4 hour dollar chart shows that price action continues to trade within a megaphone pattern and we are not ruling out a retest lower. NFP data will determine either we have a clean break out or else many dollar bulls could square up and start selling it hard.

We expect the dollar index to rebound and depending on this rebound, it will determine whether this is a determined bull market. In the short term, a deeper pullback is healthy for the index. Take note that the dollar did sell off hard but we cannot discount the fact that it also created a higher high and a higher low (see 4 hour chart). Only if we break below last Friday’s low then a retest of the lower end of that megaphone pattern comes to play. Otherwise, a breakout of last Friday’s high means further upside is in store.

German Bund

Daily

4 hour

Bunds bounced higher after support at 20 ma is solid and a retest on the trend line shown on the 4 hour chart remains possible. The 4 hour chart also shows that buyers step in on the 100 ma. The daily chart indicates that the bunds could test higher. Only a daily break and close below the 20 ma will get us to target the 76.4 Fib at 150.78 where we look to enter a potential swing long.

As the EUR/USD strength starting to fade – we expect a higher bund in the short term and potentially a stronger Dax.

Eur/Usd

Daily

4 hour

Continued support from the purple trend line has given traders a clear risk reward area. However, the price action remains confined in this tight range and the week started with weakness. Resumption in the dollar index could take euro lower to retest and potentially create a higher low. Failure to do so could see a break of the key support which could transpire in heavy selling.

German Dax

Daily

4 hour

Dax reversed last Friday on the back of profit taking and a stronger Euro after we witness the dollar did a hard reversal. Overall, the dax remain strong and current price action shows a potential bull flag formation. The 4 hour chart also shows that it bounced off the 38.2% retracement and still trading above the red trend line. In the daily chart, we have boxes as potential reversal zone which could also act as target. It does help to create a potential entry and exit area. With potential stimulus from emerging economies, the QE induced Dax could propel higher. The recent sell off in the US stock market could actually divert funds to European equities.

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