The Euro continues in a bearish descending triangle against the dollar. Breakout below $1.40 would signal a decline to test support at $1.30*.
* Target calculation: 1.40 – ( 1.50 – 1.40 ) = 1.30
Kiwi Dollar continues to strengthen
The Australian Dollar continues in a downward trend against its Kiwi counterpart. Recovery above $1.26 would test the upper channel at $1.28, but breakout below $1.23 is just as likely and would continue to test the lower channel border.
* Target calculation: 1.28 – ( 1.32 – 1.28 ) = 1.24
Aussie Battler finds support
The Australian Dollar broke support at $1.04 against the greenback, signaling a correction to the long-term trendline. Support at parity has so far held and recovery above $1.045 would indicate another test of $1.10.
* Target calculation: 1.04 – ( 1.10 – 1.04 ) = 0.98
Yen tests support
The greenback is testing weak support at ¥76.50. The BOJ is unlikely to succeed in preventing further appreciation of the yen, to a medium-term target of ¥73.00.
* Target calculation: 76.50 – ( 80.00 – 76.50 ) = 73.00
South African Rand
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
Canadian Loonie
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
China faces lower growth
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:
- bloated, inefficient corporations;
- high inflation; and
- massive speculative bubbles.
Options are narrowing and a shift to private consumption as the main driver of future growth is not without its risks:
- low interest rates and high inflation are eroding private savings;
- higher interest rates, however, would unmask business inefficiencies and collapse the speculative property bubble;
- higher wages, on the other hand, will fuel inflation.
This Chinese puzzle may not be easy to solve.
China’s Conundrum
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)
Aussie dollar reveals source of ASX bounce
The Aussie dollar displays a similar long tail to the ASX 200, indicating that buying support on the Australian stock market came from international, not local, buyers. Dolphin tells us that institutional buyers moved in when AUD fell below parity against the greenback.
ASX closes in positive territory
The ASX 200 closed in positive territory for the day, accompanied by strong volumes indicative of today’s institutional buying across the Asia-Pacific region. Expect a dead cat bounce — a rally to re-test resistance levels — but the bear market is not miraculously over and may take several months to resolve.
