Devaluation, Deflation then Depression? Inter Market Analysis

Risk On

  • China stock recovered on the back of dip buying activity – government intervention?
  • German Finmin Schauble calls on lawmakers to ratify Greek Bailout – kick the can down

Risk Off

  • Commodity market continue to languish with a dead cat bounce – oil higher
  • Safe haven buying in gold – while Silver trying to recover from yesterday sell off
  • Glencore first half profit tumbles as weakness in base metals eat profits
  • Dollar tumbled ahead of FOMC statement – front running a dovish remark from the statement due to China
  • European stocks all struggled lower – but we could see a late recovery into the close
  • Canada, Australia and Mexico stocks all lower – Asian currencies near 1998 currency fallout
  • Further fear of Yuan devaluation after a poor run on the stock market
Market digesting China then FOMC – weakness in future growth / lower expectation on earnings and re adjustment – stocks tumbled but all these are priced in and QE to kick off higher equity again?

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

Dollar sells off as Asia open suggested that traders are front running a rather dovish FOMC statement. The risk here is that the FOMC statement is a rather delayed statement that has yet include China as in its discussion. However, it is clear that some dollar bull is not confident that Miss Yellen can remain hawkish as the global economy is thrown into a spiral on the back of a weakening Chinese economy. We are watching the 4 hour dollar index chart that may well indicate a bear flag formation and we argue that price action continue to trade within the megaphone pattern. Therefore, there is no surprise for further dollar weakness. With that in mind, commodity currencies and commodity market may garner some relieve buying.

German Bund

Daily

4 hour

No change on Bunds as the price action starts to converge in a tighter range trading session.  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. However, we cannot rule out another retest higher first for a potential spinning top or doji to confirm a short trade.

Eur/Usd

Daily

4 hour

With FOMC statement today, it is little surprise to see Euro long to retrace and wait for further clarity before adding on more trades. In the short term, a bull flag formation could still play out if we get a rather dovish remark from the statement – causing further weakness in dollar. 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 also shows that it has reached support zone where price action could make or break.

German Dax

Daily

4 hour

With China weakness and then late recovery, European equities are suffering the same fate but we cannot rule out that there is a potential swing long opportunity. All the negative news are priced in and looking further ahead – equity market will remain buoyed on the back of further stimulus. Mind the Gaps upfront.

Gold

Daily

4 hour

Price action was a tad weird as it found support at 1109 and within a flash price recovered to 1117. We continue to watch at a potential bull flag at play but wary if higher price on the yellow metal is temporary. 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

Silver pulled back as mentioned in our analysis yesterday and went subbed 15 in search for support. The low came in at 14.72 just shy of 76.4% fib retracement at 14.65 on the recent run. However, price action has played out as we envisaged – retested the breakout area and buyers need to step in here for the white metal to break higher. Gold seems to be holding up much better on Silver but we have to remain cautious that Silver may signalled that a deeper pullback in gold has yet to play out. FOMC statement will paint the next directional play.

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