Forex Archives - Page 21 of 60 - the patient investor

June 8, 2016

Gold strengthens as Dollar weakens

Long-term interest rates continue their decline, with 10-year Treasury yields testing support at 1.65 to 1.70 percent. Breach would signal a test of the all-time (July 2012) low of 1.40 percent.

10-year Treasury yields

Gold rallied in response, breaking initial resistance at $1250/ounce to signal a test of $1300.

Gold

The Chinese appear to have resumed selling foreign reserves to support the Yuan, with USDCNY running into resistance at 6.60. PBOC sale of reserves would weaken the Dollar, boosting demand for Gold. Failure to support the Yuan is unlikely, but would increase safe haven demand for Gold from Chinese investors.

USDCNY

The Dollar Index, representing predominantly the Euro and Yen crosses, fell sharply. Breach of support at 93 would confirm the primary down-trend earlier signaled by 13-week Momentum below zero.

Dollar Index

The Australian All Ordinaries Gold Index broke through 4500 to signal another advance, with the weakening Australian Dollar adding further impetus. Gaps between trough lows (orange line) and preceding highs (brown line) indicate strong buying pressure.

All Ordinaries Gold Index

Disclosure: Our Australian managed portfolios are invested in gold stocks.

May 26, 2016

Gold tanked? Not yet!

Gold broke below its recent flag formation, warning of a test of support at $1200/ounce.

Gold

Selling is driven by expectations of a Fed interest rate hike in June …..and recent Chinese stimulus which postponed Yuan devaluation against the Dollar. But expectations of a rate hike are causing a sell-off of the Chinese Yuan, with the USDCNY strengthening over the last few weeks.

USDCNY

…Which in turn will cause the Chinese to sell foreign reserves to support the Dollar peg (…..else devalue which would panic investors and cause a downward spiral). Sale of Dollar reserves by China would drive the Dollar lower.

Dollar Index

…and Gold higher. I remain bullish as long as support at $1200/ounce holds.

Disclosure: Our Australian managed portfolios are invested in gold stocks.

May 18, 2016

Treasuries fall and Dollar strengthens on latest Fed minutes

Treasury yields rose and prices fell sharply after release of minutes from the Fed’s latest monetary policy meeting. The April minutes reveal that policy makers see a June interest-rate hike as appropriate if labor markets and economic growth continue to strengthen. The 10-year Treasury yield jumped 12 basis points, suggesting a rally to test resistance at 2.0 percent.

10-year Treasury yield

The Dollar strengthened against China’s Yuan, testing medium-term resistance at CNY 6.55. Breakout would force the PBOC to further deplete foreign reserves in support of the Yuan. The alternative of an uncontrolled descent would instill panic and encourage capital flight to gold and the USD.

USDCNY

May 13, 2016

Greenback finds support

The US Dollar Index rallied off long-term support at 93 but this looks more a pause in the primary down-trend, signaled by decline of 13-week Momentum below zero, than a reversal.

US Dollar Index

Explanation for the Dollar rally is evident on the chart of China’s foreign reserves: a pause in the sharp decline of the last 2 years. China has embarked on another massive stimulus program in an attempt to shock their economy out of its present slump.

China: Foreign Reserves

But this hair of the dog remedy is unlikely to solve their problems, merely postpone the inevitable reckoning. The Yuan is once again weakening against the Dollar and decline in China’s reserves, and the US Dollar as a consequence, is likely to continue.

USD: Chinese Yuan

April 17, 2016

Deloitte Access Economics says China, housing and high $A test Aussie resilience

Mark Mulligan:

“Australia continues to swim strongly against the global tide, shrugging off China’s slowdown, rotten commodity prices and a fast fading resource construction boom to chalk up good growth,” said Deloitte Access Economics partner Chris Richardson…..

“A stronger Australian dollar … could, if it is sustained, start to take the cream off the cake of the non-mining growth story,’ said Mr Richardson, “with some of the recent gains in tourism and international education potentially at risk, and the possibility of the blowtorch to the belly going back onto the nation’s long-suffering manufacturers and farmers.”

The Australian Dollar is too strong given the current headwinds facing the economy. Having closely tracked commodity prices since 2009, recent divergence has the Aussie rallying to test resistance at 80 US cents. Failure of negotiations among major oil producers, in Doha, to institute a production freeze, may be just the catalyst needed to spark another decline. This time with a target of 60 US cents.

AUDUSD

* Target calculation: 70 – ( 80 – 70 ) = 60

Source: Deloitte Access Economics says China, housing and high $A test Aussie resilience

March 1, 2016

Gold rallies as crude finds support

Crude finds support at $30/barrel, iron ore rallies, the Dollar strengthens, long-term interest rates fall and all seems right with the world. But is it? Deflationary pressures in Europe are rising. China cut bank reserve requirements to stimulate lending. And long-term interest rates would be rising, not falling, if confidence is restored.

Crude

Nymex WTI Light Crude futures (June 2016) found support at $30 per barrel. Expect a test of $40/barrel. But the primary trend is down and respect of the descending trendline is likely, which would warn of another decline.

Nymex WTI Light Crude June 2016 Futures

* Target calculation: 30 – ( 40 – 30 ) = 20

Long-term interest rates remain weak, with 10-year Treasury yields testing primary support at 1.5/1.65 percent. The flight from stocks is driving up Treasuries (and yields lower), overwhelming sales by China (to shore up the Yuan). Declining 13-week Twiggs Momentum warns of further weakness.

10-year Treasury Yields

The Dollar Index rallied over the past two weeks but further PBOC selling is expected to reinforce resistance at 100. Reversal of 13-week Twiggs Momentum below zero would warn of a primary down-trend.

Dollar Index

Gold has benefited from the uncertainty, with consolidation above $1200 suggesting another advance. Breakout above $1250 would offer a target of $1300*.

Spot Gold

* Target calculation: 1200 + ( 1200 – 1100 ) = 1300

The monthly chart, however, reflects a more precarious position. Momentum has clearly shifted, with breach of the descending trendline and a sharp rise on the 13-week indicator. But there is no higher trough confirming the trend change. So pick your entry points carefully and maintain tight stops. This could still go either way.

Spot Gold

February 18, 2016

Gold: PBOC makes its move

China’s PBOC made its move against the hedge funds on Monday, while many hedge fund managers were enjoying a long weekend in the Hamptons. With more than $3 Trillion of foreign reserves, this is a fight that the PBOC is likely to win, provided it stands firm. Hedge funds betting on a collapse of the Yuan can leverage their positions, but that makes them vulnerable to margin calls. Driving the Yuan below 6.50 to the Dollar may force some to cover their shorts, which would further strengthen the beleaguered currency.

USDCNY

China’s sell-off of foreign reserves has caused the Dollar to fall, in the midst of a flight to safety. Retracement that respects resistance at 97.50/98.00 would indicate a decline to test primary support at 93.00. Decline of 13-week Twiggs Momentum below zero warns of a primary down-trend.

Dollar Index

Flight to safety has spiked demand for Gold. Expect retracement to test support between $1150 and $1200/ounce. But respect of either level would confirm a trend reversal (after recovery above $1200 completes a higher trough).

Spot Gold

February 10, 2016

Janet Yellen on financial market turmoil

Federal Reserve chair Janet Yellen before the House Financial Services Committee:

Janet Yellen

“…..As is always the case, the economic outlook is uncertain. Foreign economic
developments, in particular, pose risks to U.S. economic growth. Most notably,
although recent economic indicators do not suggest a sharp slowdown in
Chinese growth, declines in the foreign exchange value of the renminbi have
intensified uncertainty about China’s exchange rate policy and the prospects for
its economy.

This uncertainty led to increased volatility in global financial markets and, against the
background of persistent weakness abroad, exacerbated concerns about the outlook for
global growth. These growth concerns, along with strong supply conditions and high
inventories, contributed to the recent fall in the prices of oil and other commodities. In
turn, low commodity prices could trigger financial stresses in commodity-exporting
economies, particularly in vulnerable emerging market economies, and for commodity-
producing firms in many countries. Should any of these downside risks materialize,
foreign activity and demand for U.S. exports could weaken and financial market
conditions could tighten further…..”

…No rate rises any time soon.

February 9, 2016

Batten down the hatches

Batten down the hatches, the storm is here.

Nymex WTI Light Crude futures (March 2016) are testing support at $30 per barrel. There is no indication that this is the bottom and breach of $30 would be likely to test $20 per barrel.

* Target calculation: 30 – ( 40 – 30 ) = 20

Long-term interest rates are falling, with 10-year Treasury yields headed for another test of primary support at 1.5 percent. Breach of 1.7 percent would confirm. The flight from stocks is driving up Treasuries (and yields lower).

Flight to safety is (normally) synonymous with a strong Dollar, so the weakening Dollar Index is a surprise.

China must be selling off Dollar reserves to support the Yuan and restore confidence.

Too late, I’m afraid. That horse has bolted. Loss of confidence in the Yuan is driving demand for gold, with the spot metal rallying to $1200 per ounce. Resistance at the former support level makes retracement likely, but a trough that respects $1100 or narrow consolidation below $1200 would suggest reversal (to an up-trend). Breach of $1200 would offer a target of $1300*.

* Target calculation: 1200 + ( 1200 – 1100 ) = 1300

After forming a lower peak at 18000, Dow Jones Industrial Average is testing primary support at 16000. 13-Week Twiggs Momentum peak at zero warns of a primary down-trend. Breach of support would offer a target of 14000*.

* Target calculation: 16000 – ( 18000 – 16000 ) = 14000

The S&P 500 displays a similar pattern, testing primary support at 1850, with a 13-week Twiggs Momentum peak at zero. Breach of support would offer a target of 1500*.

* Target calculation: 1850 – ( 2150 – 1850 ) = 1550

A monthly chart shows VIX rising for another test of 30. Oscillation between 20 and 30 flags elevated market risk.

Australia’s ASX 200 retreated below primary support at 5000, signaling a primary down-trend. A 13-week Twiggs peak below zero already warns of a decline. Today’s close at 4832 confirms, offering a short-term target of 4600* and a long-term target of 4000*.

* Target calculation: 4850 – ( 5050 – 4850 ) = 4650; 5000 – ( 6000 – 5000 ) = 4000

Investors who plan to hold stocks through a possible down-turn should stop watching daily prices and listening to news reports. It will only weaken your resolve. I am comfortable with holding stocks with strong dividend streams, but wary of holding growth stocks as they normally suffer the biggest losses.

For traders this is a time of dangerous opportunity. Either shorting sectors likely to be worst hit or waiting for opportunities to buy gold stocks.

Only when the tide goes out do you discover who’s been swimming naked.

~ Warren Buffett

February 4, 2016

Gold rallies but how long?

We are witnessing a flight to safety as money flows out of stocks and into bonds, driving 10-year Treasury yields as low as 1.88 percent. Breach of support at 2.0 percent suggests that another test of primary support at 1.5 percent lies ahead.

10-Year Treasury Yields

What makes this even more significant is that it occurred while China is depleting foreign reserves — quite likely selling Treasuries — to support the Yuan. Heavy intervention in the past few weeks to prevent further CNY depreciation against the Dollar may well show recent estimates of a further $0.5 Trillion outflow in 2016 to be on the light side.

USDCNY

China is caught in a cleft stick: either deplete foreign reserves to support the Yuan, or allow the Yuan to weaken which would fuel further selling and risk a downward spiral. Regulations to restrict capital outflows may ease pressure but are unlikely to stem the flow.

Chinese sales of Dollar reserves have slowed appreciation of the Dollar Index. Cessation of support for the Yuan would cause breakout above 100 and an advance to at least 107*.

Dollar Index

* Target calculation: 100 + ( 100 – 93 ) = 107

Gold

Gold has also benefited from the flight to safety, rallying to $1150/ounce. The rally may well test $1200 but resistance is expected to hold. Respect would suggest a decline to $1000/ounce*; confirmed if support at $1050 is broken. Continued oscillation of 13-Week Twiggs Momentum below zero flags a strong primary down-trend.

Spot Gold

* Target calculation: 1100 – ( 1200 – 1100 ) = 1000