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.
Strong bounce in Korea, Taiwan
What appears to be strong institutional buying caused a strong bounce across a slew of Asia-Pacific markets. Long tails and a sharp spike in volume indicate buying support and a rally to test resistance (at 410 on $KRDOW).
The Dow Jones Taiwan Index shows an even stronger open-close reversal signal accompanied by big volume.
This is stronger than shorts taking profits or a few hooray Henrys snapping up bargains. The large volumes are indicative of institutions with deep pockets. Expect a decent rally, but it is likely to eventually fail. Not even Asian tigers are immune from a dead cat bounce — and bear markets take months to resolve, not just a few days.
Euro-Zone Leaders Need – WSJ.com
So the euro zone still doesn’t look like it has a coherent plan for bringing the crisis to an end, which at this late stage would require a massive increase in the funds available to the EFSF (European Financial Stability Facility) or a willingness to guarantee all euro-zone government bond issuance as a single bloc.
Australia Can Build Its Way Out of Trouble – WSJ.com
In a recent report, ANZ estimates that Australia needs to spend about 600 billion Australian dollars (US$626 billion), or the equivalent of 8% of GDP, over the next five years to bring its infrastructure “up to acceptable standards.” It argues that the country needs to invest around 1% of GDP annually just to improve its road network over the medium term.