(this post was prepared on Tuesday night, as it took some time to format it because of the new edit software. Market behaviour today confirms analysis further)
It looks like this week we might have reached an inflection point in the risk assets rally. Multiple reversals down from key moving averages coupled with some topping candlestick signs occurred in the overbought momentum territory.
My interpretation of the move... Chinese currency flexibility is a stick of two ends. From one hand this should be bullish for commodities in the long term as well as it should support foreign exporters. From the other hand allowing Yuan to appreciate is effectively an interest rate hike which is probably another attempt of the government to cool down the economy. The other problem arises from the fact that rising Yuan discourages Chinese from buying into treasuries of other countries. Again, I repeat, that my opinions never mattered to the market. Market knows best...
On individual assets:
1. S&P is struggling with 200 days moving average, coupled with overbought momentum further losses are likely:
2. Oil, same as S&P, but reversal takes place under intersection of 50&100 days moving averages:
3. Copper is a mixed bag but if other asset classes are to fall, this metal is also likely to reverse down
4. Dollar index remains in the up-trend. looking for a close above 100 month moving average in June, which should lead to multi year dollar rally.
5. Euro posted a reversal pattern in line with risk off trade, so did Canadian dollar (0.9 correlation with crude):
6. Nymex gas fell below $5 consolidation area, but still remains in the uptrend
Bottom line, it looks like summer will not be quiet and further dollar advance looks likely and while correlation with commodities and equities persists losses in equties and commodities are expected despite supportive fundamentals. the latter ones are expected to get worse in line with the idea of forward looking markets. Looking for month end closes to confirm medium term outlook. good luck trading!
2. Oil, same as S&P, but reversal takes place under intersection of 50&100 days moving averages:
3. Copper is a mixed bag but if other asset classes are to fall, this metal is also likely to reverse down
4. Dollar index remains in the up-trend. looking for a close above 100 month moving average in June, which should lead to multi year dollar rally.
5. Euro posted a reversal pattern in line with risk off trade, so did Canadian dollar (0.9 correlation with crude):
6. Nymex gas fell below $5 consolidation area, but still remains in the uptrend
Bottom line, it looks like summer will not be quiet and further dollar advance looks likely and while correlation with commodities and equities persists losses in equties and commodities are expected despite supportive fundamentals. the latter ones are expected to get worse in line with the idea of forward looking markets. Looking for month end closes to confirm medium term outlook. good luck trading!
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