The dollar spiked briefly above R7.35 but is now retracing to test support at R7.00. Long term, the Rand is expected to hold above support at R6.50 and breakout above R7.35 would signal a primary up-trend.
* Target calculation: 7.25 + ( 7.25 – 6.50 ) = 8.00
The Loonie fell sharply against the greenback before finding support at parity. Currency markets are volatile at present, evident from the wide consolidation between $1.00 and $1.025. Downward breakout would signal a decline to $0.94*, while recovery above $1.025 would indicate a rally to $1.06.
* Target calculation: 1.0 – ( 1.06 – 1.0 ) = 0.94
The Dollar Index has consolidated between 73 and 76.50 for several months. 63-day Momentum holding below zero indicates a strong down-trend. Breakout below 73.50 would warn of another decline, with a target of 70*. Recovery above 76.50 is unlikely, but would signal reversal to an up-trend.
* Target calculation: 73 – ( 76 – 73 ) = 70
Spot gold is testing resistance at $1800. A short retracement would indicate that a test of $2000* is imminent.
* Target calculation: 1800 + ( 1800 – 1600 ) = 2000
The Gold-Oil Ratio is headed for the overbought level at 20:1.
Brent crude is still hesitant about joining Light (WTI) crude in a primary down-trend. After breaking through support at $105/barrel, the stock market bounce fueled a rally to test the new resistance level. The hourly chart is currently whipsawing around $105 without clear direction. Follow-through above $107 would warn of a bear trap, but target for the breakout is $90*.
* Target calculation: 105 – ( 120 – 105 ) = 90
“Money in politics is the root of all evil”
On 1 November 2010 the Fed commenced QE2, purchasing US Treasurys with the stated intention of reducing long term interest rates. Over the next 4 months, 10-Year Treasury yields rose by 120 basis points (1.20%).
Why do we need the Fed, who can’t punch their way out of a paper bag, when a rating agency (S&P) can send yields plunging 65 points in less than two weeks. 🙂
There is a much more straightforward basis for questioning S&P’s conduct, and it has nothing to do with how S&P arrived at its rating. There is compelling evidence that the ratings agency made selective disclosure of its downgrade decision before it made it public last Friday evening. A reader told us certain hedge funds were informed Tuesday and traded successfully on the information. A separate source had told me certain banks were briefed on Thursday and were told of the US downgrade but assured their ratings would be unaffected. On Friday morning, Twitter was alight with the news.
It appears that some market participants were aware of the coming downgrade even earlier — on Friday [?] the previous week.
China’s growth over the past couple of decades was based on large increases in government-directed investment. As a consequence, it had to run large trade surpluses to absorb the resulting excess capacity in manufacturing……. This can’t continue.
~ By Michael Pettis – WSJ.com
As Japan and other fast-growing economies in the past have discovered, continued infrastructure spending grows increasingly wasteful and fails to deliver further growth. Subsidizing business through artificially low interest rates may encourage private investment as an alternative, but leads to:
Options are narrowing and a shift to private consumption as the main driver of future growth is not without its risks:
This Chinese puzzle may not be easy to solve.
Mr. Zhao said that if China keeps running a trade surplus, which amounted to $22.3 billion in June based on the latest official data, it would have little choice but to keep buying U.S. Treasurys.
via S&P Downgrade of U.S. Puts Pressure on China to Spur Domestic Consumption – WSJ.com.
…….. or remove the peg to the US dollar. Either action would be painful. (CT)
