Tag: Japanese yen

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Copper breaks support while crude gets hammered

Copper broke support at $7900/tonne, signaling a primary decline with a target of its 2022 low at $7000. The primary down-trend warns of a global economic contraction.

Copper

The bear signal has yet to be confirmed by the broader-based Dow Jones Industrial Metals Index ($BIM) which is testing primary support at 155.

DJ Industrial Metals Index ($BIM)

Crude oil

Crude fell sharply this week, after a 3-month rally.

Nymex Light Crude

The fall was spurred by an early build of gasoline stocks ahead of winter, raising concerns of declining demand.

Gasoline inventories added a substantial 6.5 million barrels for the week to September 29, compared with a build of 1 million barrels for the previous week. Gasoline inventories are now 1% above the five-year average for this time of year….. production averaged 8.8 million barrels daily last week, which compared with 9.1 million barrels daily for the prior week. (oilprice.com)

Gasoline Stocks

Crude inventories have stabilized after a sharp decline during the release of strategic petroleum reserves (SPR).

EIA Crude Inventory

Releases from the SPR stopped in July — which coincides with the start of the recent crude rally. It will be interesting to see next week if a dip in this week’s SPR contributed to weak crude prices.

Strategic Petroleum Reserves (SPR)

Stocks & Bonds

The 10-year Treasury yield recovered to 4.78% on Friday.

10-Year Treasury Yield

Rising yields are driven by:

  • a large fiscal deficit of close to $2T;
  • commercial banks reducing Treasury holdings; and
  • the Bank of Japan allowing a limited rise in bond yields which could cause an outflow from USTs.

Bank of Japan - YCC

The S&P 500 rallied on the back of a strong labor report.

S&P 500

The S&P 500 Equal-Weighted Index test of primary support at 5600 is, however, likely to continue.

S&P 500 Equal-Weighted Index

Expect another Russell 2000 small caps ETF (IWM) test of primary support at 170 as well.

Russell 2000 Small Caps ETF (IWM)

Labor Market

The BLS report for September, with job gains of 336K, reflects a robust economy and strong labor market.

Job Gains

Average hourly earnings growth slowed to 0.207% in September, or 2.5% annualized. Manufacturing wages reflect higher growth — 4.0% annualized — but that is a small slice of the economy compared to services.

Average Hourly Earnings

Average weekly hours worked — a leading indicator — remains stable at 34.4 hours/week.

Average Weekly Hours

Unemployment remained steady at 6.36 million, while job openings jumped in August, maintaining a sizable shortage.

Job Openings & Unemployment

Real GDP (blue) is expected to slow in Q3 to 1.5%, matching declining growth in aggregate weekly hours worked (purple).

Real GDP & Hours Worked

Dollar & Gold

The Dollar Index retraced to test new support at 106 but is unlikely to reverse course while Treasury yields are rising.

Dollar Index

Gold is testing primary support at $1800 per ounce, while Trend Index troughs below zero warn of selling pressure. Rising long-term Treasury yields and a strong Dollar are likely to weaken demand for Gold.

Spot Gold

Conclusion

Long-term Treasury yields are expected to rise, fueled by strong supply (fiscal deficits) and weak demand (from foreign investors and commercial banks). The outlook for rate cuts from the Fed is also fading as labor market remains tight.

The sharp drop in crude oil seems an overreaction when the labor market is strong and demand is likely to be robust. Further releases from the strategic petroleum reserve (SPR), a sharp fall in Chinese purchases, or an increase in supply (from Iran or Venezuela) seem unlikely at present.

Falling copper prices warn of a global economic contraction led by China, with Europe likely to follow. Confirmation by Dow Jones Industrial Metals Index ($BIM) breach of primary support at 155 would strengthen the bear signal.

Strong Treasury yields and a strong Dollar are likely to weaken demand for Gold unless there is increased instability, either geopolitical or financial.

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A currency war has begun….


Spot Gold

The Federal Reserve, Bank of England, European Central Bank and Bank of Japan all expanded their balance sheets (commonly referred to as quantitative easing or QE for short) post-2008 to counteract a contracting money supply and prevent a deflationary spiral. These actions also have the beneficial effect of weakening the currency and improving international competitiveness.

China was considered immune because of its persistent current account surplus and $4 Trillion in foreign reserves. But the recent sharp contraction in Chinese exports to the EU suggest otherwise.

The People’s Bank of China (PBOC) responded by effectively devaluing the Yuan. So far the “one-off adjustment” has been repeated on three consecutive days.

USDCNY

The Euro appreciated considerably against the US dollar as CNY carry trades are unwound.

EURUSD

Gold broke out of its narrow rectangle between $1080 and $1100 per ounce as investors scuttled to the safety of bullion.

Spot Gold

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

The Yen displays little net gain or loss.

USDJPY

The Dollar Index does not include China’s Yuan and is falling primarily because of the Euro. The Broad Trade-Weighted Index which includes the Yuan is calculated weekly; so it will take a few days before we can assess the impact.

Dollar Index

Competing devaluations are likely to continue as each state (or trading block) attempts to maintain an export surplus. This is a zero sum game, so each action will inevitably elicit an equivalent response from major trading partners. Currency markets are awash with vast sums of liquid capital and an estimated $9 Trillion in carry trades (where hedge funds borrow in a low-interest-rate currency and invest in another at higher rates). Any beggar-thy-neighbor escalation is likely to destabilize financial markets and the precarious balance may prove difficult to restore.

During the 1997 Asian Financial Crisis George Soros called for international regulation of financial markets to prevent a reoccurrence.

It is time to recognize that financial markets are inherently unstable. Imposing market discipline means imposing instability, and how much instability can society take? …. To put it bluntly, the choice confronting us is whether we will regulate global financial markets internationally or leave it to each individual state to protect its interests as best it can. The latter course will surely lead to the breakdown of the gigantic circulatory system, which goes under the name of global capitalism.

~ George Soros: The Crisis of Global Capitalism (1998)


More….

IEA: At Least Another Year Before Oil Markets Rebalance | OilPrice.com

Desperate times, desperate acts

Crude fall continues

Let the Global Race to the Bottom Begin | Foreign Policy

Window on Eurasia: Kyiv Must Work to Isolate Moscow Rather than Negotiate with It

Goldman Sachs Doubles Down On Lower-For-Longer Scenario | OilPrice.com

Philip Glass: 100,000 People

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Asia: Governor Kuroda bets on QE

Aggressive asset purchases by the Bank of Japan shows Governor Kuroda’s willingness to back his QE policy to the hilt. The Yen has weakened significantly against the Dollar over the last two years and this trend is likely to continue.

USDJPY

The Nikkei 225 surged through 16300, signaling a fresh advance. The long-term target is 18000*. Reversal below 16000 is unlikely, but would warn of another correction. Recovery of 13-week Twiggs Money Flow above zero indicates medium-term buying pressure.

Nikkei 225

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

Hong Kong’s Hang Seng Index is testing resistance at 24000. Reversal below 23000 would warn of a primary down-trend. Breach of 21200 would confirm. Reversal of 13-week Twiggs Money Flow below zero would strengthen the bear signal. Follow-through above 25000 is unlikely, but would signal another primary advance.

Hang Seng Index

China’s Shanghai Composite Index respected support at 2250, strengthening the bull signal. Follow-through above 2450 would confirm a primary up-trend. 13-Week Twiggs Money Flow remains in an up-trend, signaling medium-term buying pressure. Reversal below 2250 is unlikely, but would warn of trend weakness.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

India’s Sensex continues in a primary up-trend, testing resistance at 28000. Troughs above zero on 13-week Twiggs Money Flow indicate buying pressure. Short retracements rather than stronger corrections also suggest buying pressure. Breakout above 28000 would indicate an advance to 29000. The index is becoming over-extended, but may remain so for some time. Reversal below 27000 and the secondary trendline is less likely, but would indicate a correction to the primary trendline around 25000.

Sensex

* Target calculation: 27000 + ( 27000 – 26000 ) = 28000

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Nikkei finds Yen support

The US Dollar found solid support at ¥101 against the Yen. Recovery above ¥103 would suggest an advance to ¥111*. Breakout above ¥106 would confirm. Recovery above the December 2013 high on 13-week Twiggs Momentum would strengthen the signal. Breach of support at ¥101 is unlikely, but would warn of a correction to primary support at ¥96.

Nikkei 225

* Target calculation: 106 + ( 106 – 101 ) = 111

The Nikkei 225 found support at 14000. Recovery above 15000 would indicate another attempt at 16000. Completion of a 13-week Twiggs Money Flow trough above zero would strengthen the signal.

Nikkei 225

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

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Japan: Dollar supports Nikkei

The US Dollar found support at ¥101 against the Yen. Recovery above the May high at ¥104 would suggest a healthy up-trend, while breakout above ¥106 would offer a target of ¥110*. Divergence on 13-week Twiggs Momentum remains bearish, but another trough above zero would reverse this. Breach of support at ¥101 now seems unlikely, but would warn of trend weakness.

Nikkei 225

* Target calculation: 106 + ( 106 – 102 ) = 110

A rising Dollar/Yen exchange rate would assist Japanese stocks. The Nikkei 225 found support at 14000 on the monthly chart. Recovery above 15000 would suggest another advance, while breakout above 16000 would confirm. Reversal of 13-week Twiggs Money Flow below zero, however, would warn of a primary down-trend.

Nikkei 225

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Forex: Dollar and Sterling strengthen

The Euro is rallying for another test of resistance at $1.37 after finding support at $1.3350 against the greenback. Troughs above zero on 13-week Twiggs Momentum suggest a healthy up-trend. Breakout above $1.37 would signal an advance to $1.40*. Respect of resistance, indicated by reversal below the secondary rising trendline, would, however, warn of a correction to the primary trendline at $1.31.

Euro/USD

* Target calculation: 1.37 + ( 1.37 – 1.34 ) = 1.40

Sterling breakout above resistance at €1.20 signals a primary up-trend. Recovery of 13-week Twiggs Momentum above zero strengthens the signal. Target for the advance is €1.23*. Reversal below €1.19 is unlikely, but would warn of another test of €1.1650.

Sterling/Euro

* Target calculation: 1.20 + ( 1.20 – 1.17 ) = 1.23

The Greenback is likely to retrace to test the new support level at ¥101 Japanese Yen. Respect would confirm an advance with a target of ¥108*. The trough above zero on 13-week Twiggs Momentum strengthens the signal. Reversal below ¥101 is unlikely, penetration of the rising trendline warning of trend weakness.

USD/JPY

* Target calculation: 1.01 + ( 1.01 – 0.94 ) = 1.08

Canada’s Loonie broke primary support at $0.94, signaling another decline with a target of $0.915*. A peak below zero on 13-week Twiggs Momentum strengthens the signal. Recovery above $0.945 is unlikely, but would warn of a bear trap.

Canadian Loonie

* Target calculation: 0.945 – ( 0.975 – 0.945 ) = 0.915

The Aussie Dollar is heading for a test of primary support at $0.89. The peak below zero on 13-week Twiggs Momentum signals continuation of the down-trend. Breakout below $0.89 would offer a long-term target of $0.81*, while respect of support would suggest a rally to $0.93. The RBA needs a weaker Aussie Dollar, without lowering interest rates, and will do all it can to assist the decline.

Aussie Dollar

* Target calculation: 0.89 – ( 0.97 – 0.89 ) = 0.81

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Forex: Euro and Aussie retreat

The Euro retreated after a false break above resistance at $1.34, suggesting a test of $1.32. Downward breakout would signal a test of primary support at $1.28, while recovery above $1.34 would indicate a primary advance to $1.40*. Momentum predominantly above zero favors an up-trend.

Euro/USD

* Target calculation: 1.34 + ( 1.34 – 1.28 ) = 1.40

The greenback is testing the upper border of its downward channel against the Yen. Breakout above ¥98.50 would suggest the correction is over and another test of ¥101.50 likely. Respect of resistance, however, would indicate a test of primary support at ¥94; breach of support at ¥96 would confirm.

USD/JPY

* Target calculation: 102 + ( 102 – 96 ) = 108; 94 – ( 102 – 94 ) = 86;

The Aussie Dollar retreated below $0.90 against the greenback, respect of the descending trendline suggesting another down-swing. Breach of support at $0.8850* would offer a medium-term target of  $0.86*, but the long-term target remains at $0.80*.

Aussie Dollar

* Target calculations: 0.89 – ( 0.92 – 0.89 ) = 0.86; 0.95 – ( 1.10 – 0.95 ) = 0.80

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Forex: Euro, Aussie and Loonie strengthen

The Euro is consolidating between $1.32 and $1.34. Upward breakout would indicate a primary advance to $1.40*, while reversal below $1.32 would warn of another test of primary support at $1.27. Close oscillation of 13-week Twiggs Momentum around the zero line indicates hesitancy.

Euro/USD

* Target calculation: 1.34 + ( 1.34 – 1.28 ) = 1.40

Sterling respected primary support at €1.135/€1.140 against the euro. Recovery above €1.165 suggests that a bottom is forming.  Penetration of the descending trendline would strengthen the signal. In the longer term, breakout above €1.19 would complete a double bottom with a target of €1.24. Recovery of 13-week Twiggs Momentum above zero would also indicate a primary up-trend. Reversal below €1.165, however, would warn the down-trend is likely to continue. Failure of primary support at €1.14 would confirm.

Sterling/Euro

* Target calculation: 1.19 + ( 1.19 – 1.14 ) = 1.24

The greenback is headed for a test of primary support at ¥94 against the Yen.  Breach of short-term support at ¥96 would confirm.  In the longer term, breach of primary support at ¥94 would signal a down-trend with an initial target of ¥86*, while recovery above ¥101.50 would indicate an advance to ¥108*.

USD/JPY

* Target calculation: 102 + ( 102 – 96 ) = 108; 94 – ( 102 – 94 ) = 86;

Canada’s Loonie is consolidating between $0.96 and $0.975 against the greenback. Upward breakout would penetrate the descending trendline, suggesting that a bottom is forming, while reversal below $0.96 would test primary support at $0.945.

Canadian Loonie

Short retracement of the Aussie Dollar against the greenback suggests buying pressure. Follow-through above $0.92 would test the descending trendline and resistance at $0.93. Breakout is unlikely, but would warn that the down-trend is ending. Reversal below medium-term support at $0.90 would warn of a decline to $0.87*, with a long-term target of $0.80*.

Aussie Dollar

* Target calculations: 0.90 – ( 0.93 – 0.90 ) = 0.87; 0.95 – ( 1.10 – 0.95 ) = 0.80

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Forex: Euro rallies, Yen weakens, Aussie consolidates

The Euro continues to test medium-term resistance at $1.32 on the weekly chart. Breakout above $1.32 would suggest a primary advance, with a target of $1.40* — confirmed if resistance at $1.34 is broken. But oscillation of 63-day Twiggs Momentum around zero does not indicate a strong trend and respect of resistance remains as likely.

Euro/USD

* Target calculation: 1.34 + ( 1.34 – 1.28 ) = 1.40

The greenback recovered above long-term support at ¥100 against the Yen, indicating continuation of the advance, with a target of ¥114*. Follow-through above ¥101.50 would confirm. Reversal below ¥100 is unlikely, but would warn of a test primary support at ¥94; confirmed if support at ¥98.50 is broken.

USD/JPY

* Target calculation: 104 + ( 104 – 94 ) = 114

Canada’s Loonie broke resistance at $0.96, suggesting a rally to the descending trendline and resistance at $0.98 against the greenback. Reversal below $0.96, however, would warn of another test of support at $0.9450. 63-Day Twiggs Momentum declining while below zero reflects a healthy primary down-trend.

Canadian Loonie

The Aussie Dollar is consolidating below medium-term resistance at $0.93 against the greenback. Breakout would signal a rally to the primary trendline at $0.96. But the primary trend remains downward and respect of $0.93 would re-test $0.90. The long-term target remains at $0.80* against the greenback. The RBA favors a softer dollar to cushion the impact of falling commodity prices.

Aussie Dollar

* Target calculation: 0.95 – ( 1.10 – 0.95 ) = 0.80

The impact of the declining resources sector is reflected in the primary down-trend on the Aussie/New Zealand Dollar cross. AUDNZD is approaching its target of $1.15 and breakout above the descending trendline would indicate a rally to test resistance at $1.21. But respect of $1.21 would be likely, suggesting another downward leg on the Aussie/Kiwi cross.

Aussie Dollar

* Target calculation: 1.21 – ( 1.27 – 1.21 ) = 1.15

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Forex: Euro hesitant while Aussie falls

The euro is testing support at $1.30, representing a two-thirds retracement of the previous advance. Follow-through below $1.2950 would signal another test of primary support at $1.28 — and a ranging market — while respect of $1.30 would suggest a primary advance to $1.36*. Recovery of 63-day Twiggs Momentum above zero would be a bullish sign.

Euro/USD

* Target calculation: 1.30 + ( 1.34 – 1.28 ) = 1.36

Pound Sterling is ranging between €1.16 and €1.19 against the euro. Upward breakout — and penetration of the descending trendline — would signal a primary advance to €1.22*. But breach of support at €1.16 would indicate another test of primary support at €1.14, while a 13-week Twiggs Momentum peak below zero would suggest continuation of the primary down-trend.
Pound Sterling

The greenback retraced to test the new support level at ¥100 against the Yen. Respect, indicated by follow-through above ¥101, would re-test resistance at ¥103 to ¥104. But reversal below ¥99 seems as likely, and would re-test primary support at ¥94.

USD/JPY

* Target calculation: 104 + ( 104 – 94 ) = 114

Canada’s Loonie is testing support at $0.95 against the greenback. Follow-through below $0.9450 is likely and would signal another decline, with a target of $0.9350*. 63-Day Twiggs Momentum oscillating below zero indicates a strong primary down-trend.

Canadian Loonie

* Target calculation: 0.96 – ( 0.9850 – 0.96 ) = 0.9350

The Aussie Dollar continues to fall, with an immediate target of $0.90* and a long-term target of $0.80* against the greenback. The RBA is cheering this on as they need a softer dollar to cushion the impact of a down-turn in commodity prices.

Aussie Dollar

* Target calculation: 0.92 – ( 0.94 – 0.92 ) = 0.90; 0.95 – ( 1.10 – 0.95 ) = 0.80

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