China Take On The World – Inter Market Analysis

Risk On

  • As mentioned yesterday, the effect on the Yuan devaluation has lessened – priced in – Emerging economies are rebounding higher – commodity currency managed higher
  • Chinese exports forecast to grow for full year 2015
  • Early European trading seen shares higher
  • Expectation of weaker dollar has taken effect – Fed members will need to clear the air – market expectation is for a stronger US dollar if we do get a September rate hike
  • Greek Q2 GDP QQ advance +0.8% vs -0.5%
  • Nestle Sales beat estimates

Risk Off

  • Greece vote within parliament on the latest bailout deal – no debt haircut – at least some sort of stability if this goes through
  • China Yuan devalue further on 3rd day after assurances that this is a one off adjustment – Chinese lose credibility
  • Stance and timing of the Yuan devaluation suggest the internal challenges that China is facing – externally it may have feel the heat from other regional central banks
  • UK consumers are going to tighten until there is a clear signal from BOE – despite level of debt has lowered – consumer remain cautious – deflationary pressure to hold back on spending as well
  • Baghdad car bombs – middle east tension continues – US launch attach on ISIS via Turkey
  • Oil prices potential double bottom – commodity continue to suffer as China devalue
A Greek third bailout will do the country a short term good – ECB meeting minutes should transpire continued support of QE

Bank of Canada considering QE?

Flipping to say that the extra Stimulus will start to kick in for a great end of year fireworks in global equities

Risk of deflation, currency and price war has not taken effect yet – however, commodity market is oversold – there was limit down in Corn and Soy due to Crop hikes

Multi Time Frame Analysis

USD index

Daily

4 hour

The dollar sell off took a more severe turn as China PBOC intervene in the market to weakened their Yuan for the third day in a row. So called one-time adjustment has led to several rounds of devaluation of no more than 5 %. The one encouraging sign is the intervention at such a scale could well be over soon and we cannot ignore the damage done. For the bulls, as long as the 4h megaphone pattern remains, then there is a decent chance of testing lower low before resuming higher. However, we are mildly bearish as the daily and weekly chart does not instil confidence. IF there is no rate hike in September then we expect the dollar bull to run for the exit!

German Bund

Daily

4 hour

The daily 200 ma has acted as resistance here while the RSI could potentially break out – but we are cautious of further gains in bunds as the RSI is diverging on higher Bunds. Euro strengthens and Bunds strengthen does look a tad odd but we will keep a close eye on the 4 hour as well as the top looks heavy now with a potential gravestone doji formation evolving today?

Watching the EURO/USD pair which could give additional clue – if dollar weaken further Euro strengths could pop – where is bunds going then?

Eur/Usd

Daily

4 hour

Current price action is already trading above the 50% fib and as the 2 arrows pointed out on our 4 hour chart are the next resistance at 61.8 and 76.4%. Any pullback remains a buying opportunity especially on breakout level which lies with 38.2% fib and ma confluence zone.

The market will continue to adjust the change in forex landscape after what the PBOC did – we could well have a stronger Euro until the market stabilise that September rate hike is still possible – waiting for a top to short

German Dax

Daily

4 hour

The turnaround happened after Europe close – price action breached below the 200 ma but did not close below it.  Dax has been saved again but we need to see follow through buying as traders look for a stable outcome after 2 days of selling. There are 2 gaps unfilled which could act as magnet for Dax to propel higher. We shall monitor EUR/USD which could give hints to a potential directional change.  In the short term, we are not ruling out a retest lower if this rebound is wave 4 out of 5 on the Elliott wave count.

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