Emerging Markets Wrath – Inter Market Analysis

Risk On

  • Greece ease controls on capital movement
  • Additional stimulus from PBOC but it will take time to work its way to the economy
  • Lindt shares hit record high after half year earnings
  • Merkel press dissenting lawmaker to approve Greece Bailout – kick the can further

Risk Off

  • Commodities are in the red after China shares limit down – oil prices tanking lower – Rouble in trouble
  • Oil trouble – Wood Group cut 13% workforce – Kremlin job cuts
  • Copper and Aluminium drop to 2009 low over concern of Chinese economic growth
  • Concern also on Japanese economic growth – need extra arrow of stimulus
  • Abe advisor Honda says no need to expand stimulus now
  • Chinese government look to strengthen anti-corruption after Tianjin blast – will affect further economic growth
  • Further fear of Yuan devaluation after a poor run on the stock market
  • Monday US Empire state manufacturing came in worse than expected – in a downtrend
  • Indonesia economic slowdown appears to be worsening
  • Bomb sinks Thai shares
We are here – turnaround Tuesday despite a poor run in emerging economies and heavily run down commodity prices – higher equity prices will be based on extra QE stimulus to prop up the ailing economies – all is 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

Further risk of Yuan devaluation and weakness in emerging market could continue to support a strong dollar ahead of a September rate hike. This could put into question if the rate hike has very much been priced into the dollar and any further announcement could led to sell off instead. 4 hour chart shows a potential bear flag formation after the broad dollar sell off – resistance at 50% fib retracement and the 100 ma. Further resistance are seen at a potential Fib confluence zone 12037 – 12040 levels.

German Bund

Daily

4 hour

Bunds continue to grind higher and finding support along the way despite the daily RSI is diverging. 4 hour chart also indicate price consolidating between 154.50 and 155.50 levels. A breakout of either price range will led to a strong directional move. We favour a deeper pullback on Bunds going forward – higher euro – lower Dax.

Eur/Usd

Daily

4 hour

Daily chart shows that Euro pulled back after a run to resistance at 61.8% fib and currently consolidating with more potential to move higher. Shorts covering and interest in the Euro has certainly picked up if Fed fails to raise rate in September. 4 hour chart show a potential falling wedge and breakout higher cannot be rule out.

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

As per our analysis last Friday, not ruling out a retest lower is the correct move. We may have reached oversold levels with various supports coming in line. Only if we see a broad market sell off then the scenario of a recovery could be at play. However, the risk to the downside remains possible if we make new low today. The gift buy zone at 10300 is certainly an interest but we cannot discount the 2 upper gaps that has yet to be filled. It will be a make or break time on Dax – all eyes if Euro can test higher with a weaker dollar index – this could easily propel a sell off (in line with Bunds?)

Gold

Daily

4 hour

Gold continue to trade above its 20 dma giving some comfort that key mas are all turning higher on this short term bounce. The next resistance comes in at 50 dma and 100 dma which could confluence with several key Fib retracement zones. Weakness in the dollar could help propel gold higher but one has to be wary if higher gold prices are sustainable. Recent buying activity could be temporary seasonal demand and short covering at play. Expect strong resistance at 1142 to 1152 levels.

Silver

Daily

4 hour

As per last week analysis, pullback on Silver is playing out as the 4 hour RSI is diverging heavily – sell off happened late Friday – with a double top formation and we will not rule out deeper pullback – potentially sub 15 to retest breakout area or at least the 20 dma. Pullback remains a buying opportunity.

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