Black Gold – Inter Market Analysis 14th August

Risk On

  • Shanghai composite hit 4000 mark while other Asian stocks failed to propel higher
  • Greek parliament passes bailout agreement
  • China Iron ore prices rebounded on bargain hunting – firm buying
  • Dollar weakness seems to favour US equities

Risk Off

  • Asian shares continue to glut with the week ending lower – concern on the Chinese demand and price wars continue to linger
  • French economy grinds to a halt – Germany GDP disappoints
  • BP closure of Whiting refinery – oil slump continues affecting the energy industry
  • Turkey heading for new elections as Lira & stocks tumble
  • Euro Flash GDP lower than expected though CPI came in line
  • 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
Next week watch for “turnaround Tuesday” on indices, commodities and currencies – Fed members could give dollar bull the comfort they have been seeking for. FOMC meeting minutes to consider as well.

Extra Stimulus will start to kick in for a great end of year fireworks in global equities

Multi Time Frame Analysis

USD index

Daily

4 hour

Price action suggests that short term weakness could continue although the dollar could soon come to support. Damage is done on the weekly and daily chart – whilst we have to be aware that the 4 hour megaphone pattern could continue. With the daily RSI still not on oversold territory, we cannot rule out further weakness. This should help commodity currencies in the short term – with Euro much stronger – thus affecting German Dax.

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 – the price action seems to suggest an exhausted run and a pullback should be healthy.

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. As mentioned above, we will be cautious next week as Fed members make their views clear – potentially giving the dollar bull some sort of relieve.

German Dax

Daily

4 hour

A close below 200 ma today could spell trouble on Dax – with a potential threat of breaking lower next week. We cannot rule this out given the weakness in the dollar may continue – giving the Euro strength – thus weakening the Dax further. A strong Euro is not in the best interest for the heavily QE induced Dax. Any lack of follow through buying this afternoon means the bears are holding strong. 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.

Gold

Daily

4 hour

With the dollar weakness set to continue, the yellow metal could find some comfort to break higher. 4 hour chart shows that the 200 ma is the next set of resistance to allow gold 1130 and 1142 – retesting previous breakout level. Failure here means it could reverse to the low 1100 and a break of 1080 means more sell off to come. The weekly chart has also show green shoots which could be catalysts to break higher. However, next week FOMC meeting minutes could make or break this dead cat bounce.

Silver

Daily

4 hour

Lower time frame could put silver in an overbought condition while the daily RSI has not cross the overbought area. We are wary that we may see a pullback – potentially to retest the breakout level or the 20 dma as crucial support.

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