Inter Market Analysis – 11th August

Risk On

  • China increase its New Loans to 1480 B compared to 1270 B!!! Extra stimulus underway
  • Fed Fischer hinted with a delay on rate hike – all this priced in now
  • Greek clinched 3rd bailout – expect Greek stock to stabilise – kick the can down

Risk Off

  • Asian shares fell by end of trading Tuesday after Chinese rate cut – should rebound tomorrow?
  • Currency War just got much hotter with China rate cut – RBA and RBNZ may have to follow?
  • Commodity market affected as it looks expensive if to sell to China – further price cut & deflation?
  • The dollar whipsawed with initial strength then sell off – stronger EUR/USD – EZ equities suffering
  • German Zew economic sentiment down – China effect?
  • How will Apple shares fare now with Yuan devaluation?
We think the Chinese government read our report (yesterday we wrote they need to do more). Overnight Yuan devaluation was their answer.

Currency war escalate  – global competitiveness and deflation are the risks here – price war and the risk that Fed do not need to rate hike in September

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

After the Yuan devaluation announcement, the dollar whipsawed but still holding relatively well and found support from confluence of Fib retracement on the hourly chart. It is still on a higher low and unless the bears can break it lower then chances is a stronger dollar will continue to be the case as traders positioned for a September rate hike. 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.

Bunds rose on the back of higher Euro as well – with short term outlook for higher Bund still in store.

Eur/Usd

Daily

4 hour

Fascinating turn around on the Euro – showing a resilient bull as the dollar index came off. This further suggests that many dollar bulls are trapped at the high while those who short the Euro are punished. The daily chart indicates a breakout as it trade above the 20 ma with resistance at 100 ma.  Yuan devaluation initially send the dollar soaring but market players may change stance – buying the cheap Yuan for future consumption by large corporate could be the reason for a shift. China also signal to the global economy that it is struggling and with the Fed and BOE rate hike proposal – it has certainly thrown many questions about the viability to do so now.

German Dax

Daily

4 hour

Dax sell off, breaking several key support levels which put the overall bull trend into question. It has been rising since 27th of July and we cannot rule out a pullback here. Our Daily chart argues for the break below the key rising trend line which could potentially take the price lower – using the rectangular boxes as target. 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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