by Pinchas Cohen
Global economic growth is being confirmed on Japanese corporate results, Chinese manufacturing and South Korean export data which leaped 20 percent in July YoY and beat expectations. This across-the-board rise in economic results at the global market open continued yesterday’s rally, which was led by raw material producers after copper reached a two-year high. The MSCI Asia Pacific Index is at its highest levels since before the 2008 recession.
Chinese manufacturing, as measured by the Caixin Manufacturing PMI, rose again to 51.1 in July from 50.4 in June—its highest level in four months. These results confirm the expansion in Chinese manufacturing, which may offset the official government data showing renewed weakness in production and demand. Unlike in previous instances, when the divergence between official and private data created suspicion regarding the Chinese government numbers, currently the official read isn't better than the private version. This in turn has led investors to believe the government's numbers, at least for the time being.
European futures opened higher, suggesting that Asian markets are creating a global momentum.
WTI crude oil has reached $50 a barrel for the first time since May. The commodity is trading over the 200dma (red) for its third day, and has overcome the steeper uptrend line (which cuts through the intraday high of the April peak, and makes it more representative of the May apex), but is still below the purer uptrend line which respects all highs, at $51 per the current level . The ultimate resistance is expected from previous peak of $52.00, on May 25.
The MACD is the most overbought since January, before the decline, while the RSI is the most overbought since June 8 2016, making the current rally, from a momentum perspective, even more extreme than the one following the OPEC and NOPEC cuts. This makes sense considering the strongest rally of the year is happening after oil fell into a bear market.
The US dollar didn’t stand a chance after President Donald Trump fired White House communications director Anthony Scaramucci, only 10 days after hiring him. The dollar, having fallen its most in six year, is the big loser against all 16 major currencies. It was Trump who triggered its decline when he told the Wall Street Journal on January 17 that a strong dollar is “killing us.” While disappointing economic data hasn't helped since then, the never-ending, ongoing political drama generated by the current administration keeps pushing the dollar further down. Though Trump deliberately talked down the USD in January, the harm he's caused it since—whether he wants it to continue lower or not—has been a result of his not being in control of the situation.
In the final analysis, demand for a country’s currency reflects confidence in it by investors. The sad state of the dollar simply underscores the fact that the highest level of uncertainty among all the majors now resides with the US. After the Dollar Index reached its lowest level since May 3 2016, it made an attempt at a semblance of a climb but failed that as well, and was flat at yesterday’s close.
Down under, the Reserve Bank of Australia left interest rates at 1.5 percent per expectations. The bank warned that a strengthening currency, which advanced 11-percent this year, is expected to slow down inflation, growth and employment. It’s unclear to whom this warning was issued, as those who determine the price of the Aussie are speculators. Perhaps, the warning was in fact directed to them: don’t chew on more than you can bite; buy too many AUDs and you will end up with a weaker currency due to slower economic growth. But that seems farfetched.
The Aussie fluctuated after the non-decision, falling under $0.80, but rebounded as high as $0.8043. If the warning was aimed at speculators, they don’t seem concerned, for now. Technically, the AUDUSD bottomed at the end of 2015 and has been trading within a massive year-and-a-half-long triangle reversal, which was broken out of on July 13. It provides a thousand-pip upward target price.
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