Markets: Fire all weapons!

Posted: August 13, 2015 in markets, stock market

What an interesting August!

The share market is where retail and wholesale investors are playing their fortunes, winning and losing

The bond markets is where the institutional investors are playing their fortune, wining and losing

The currency markets is where where the government playing their fortune, winning and losing.

The currency war has been silently going on for over a year, but China entry put it in the frontpage.

It is difficult to explain the importance of the Chinese entry in the small amount of time I have to write this blog.

Just try to think with logic…China on 2014 represented 41.5% of world trade (Font Worldbank).

But it is more than that as Asian countries at large and a lot of emerging markets such as Brasil, Indonesia, South Africa  have relations with China much higher than that.

And the real battle is the US Dollar as global reserve currency. And it is a really important battle…no empire in history survived the fall of its own currency (Roman Empire, Imperial Spain and UK are easy example)..

Media says that China devalued the yuan as a consequences of the bad export data….and they are wrong.

If there is something certain about the Chinese is that they do not take decision in a hurry.

This was planned well before, it is part of their transition to a market set exchange rate (part of the condition of the acceptability of the yuan as a reserve currency in the IMF currency basket joining USD, Euro, UK GBP and Yen).

Unnoticed to most, now the Yuan is set also with the agreement of the 5 major Chinese banks (Government owned, but you see the direction

Nicely, it killed other two birds…boosted export and burned potential international short seller on the A share market.

——

It is too long to list the consequences…you can google it. But one main one that the Federal Reserve now will re evaluate if increasing rates in September is really wise. And this is the clincher for the market.

In all this confusion …what technical analysis says?

Quite too technical to go in detail, but….broadly

The sell off has been too violent so there could be easily a “jump in rally” that could bring back the US SP500 to 2,130-2,160 quite soon (end of August).

But be wary as it will be a non – sustainable rally as the volumes are too thin and there is a clear unfilled gap on the Volatility Index at 16.

September to early October could be a short, but brutal Sell Off with target SPX 1,970 (main supports are 2,063 and 2,044). Probably due to the FED and some USD surprise movement.

If you take technical analysis literally and the behaviour of gold (rising sharply) it would mean the Fed does not lift interest rates and USD falls (burning everybody.,..as everybody is long dollar).

But this is akin looking into a crystal ball.

As usual, these are not trading recommendation as there is much more to it. It is just the best thriller of the year!

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