Bloody August – Inter Market Analysis

Risk On

  • UK tax receipts swell – show first July surplus
  • Eurozone business growth unexpectedly accelerated on the back of price wars to increase new orders
  • Japanese flash manufacturing PMI shows growth – benefited from a weaker yen

Risk Off

  • China factory slowdown revive fear of a slowdown in the global economy
  • Syriza rebels form new Greek party – Tspiras resigning – Germany wants the new elected party to honour bailout
  • German consumers starting to worry about the health of the economy – survey
  • Global stock market suffer – Europe shares biggest weekly fall – China defended 3500 again but grim reading on data does no good
  • Twitter shares tumble back to IPO price
  • Dollar weakness continues – sell off in equities also see weakness
After FOMC statement – equities failed to break previous high sent a strong message that the market is not ready – profit taking and selling in the summer trading season (low volume) exacerbate the condition. All negative news priced in but the selling may not be over yet.

Extra Stimulus has yet to kick in but wary of the build up to Santa rally

Multi Time Frame Analysis

USD index

Daily

4 hour

We have reached the lower end of the megaphone pattern and in the short term expect price action to consolidate here with possibility of further weakness. The structural damage remains while the daily chart shows a potential area for a double bottom structure. We could be near a potential reversal zone unless we break out of this megaphone pattern. With the Fed likelihood of raising interest rate – the dollar could remain strong. Take note that sell off in dollar depict sell off in the equity market.

German Bund

Daily

4 hour

This could well be the end of the Bund advance – it hit our zone of interest and reverses sharply. The daily RSI are stalling and diverging – cracks are showing that it may have come to point of exhaustion soon. We may have the deeper pullback in the next few weeks.

Eur/Usd

Daily

4 hour

Euro spiked and currently consolidating near the high while the chart shows potential pullback, we will not discount the possibility of retest higher. The final move higher could be an exhaustion pattern to signal a potential reversal at play. We have the daily 200 ma as potential reversal zone and this is only invalidated if price break above 1.14 levels.

German Dax

Daily

4 hour

Dax just got thumped and we did warn about the danger on a higher Euro that does not seem to signal a bottom is in for the German Dax. The poor economic data from China only add oil to the burning fire – Dax retraced overnight to 10055 before it bounced higher as Europe opens. For now this is damage control situation and we cannot rule out a retest of 10055 again. Only a break above 10585 levels could help indicate the bottom is in.

Gold

Daily

4 hour

Gold spiked to touch the 100 dma before retracing lower to a low of 1148 – benefiting from a weaker dollar. As mentioned before, we will keep an eye on the dollar for a potential double bottom or support that may end the current gold rally. Yes, it is just a speculative view that gold may retrace to form a RHS of an Inverse Head and Shoulder. It is early days but any view of a dollar revival then expect bears to claw its way lower on gold.

Silver

Daily

4 hour

We were hoping for a firework rally on silver but the poor Chinese data has certainly dampened the mood to rally higher. Note that the daily chart has an RSI that is diverging – equivalent to the 4 hour chart. Meanwhile, the 4 hour chart has a potential of forming an IHS though we view this as unlikely. For Silver to break higher, it need to find support at 15.16 and bounce hard. Failure to do so could mean a retest lower for a double bottom at 14.73 levels.

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