I started to cover European gold at the beginning of this year when it was at the 1000 EUR level. In spring I added silver to the pack as it had an interesting setup on the chart. Today I would like to share with you an update of the charts and to show you the outcomes.
Let us start with a single currency chart and see if we can find some clues which could help us with the metal crosses charts.
Chart 1. EURUSD Monthly: RSI Calls For Higher High
Chart courtesy of tradingview.com
Now, after almost two months, the dust of BREXIT hysteria has settled. The euro has managed not just to survive, but to score more than 2 cents after it touched the $1.09 mark on the referendum selloff in June. Friedrich Nietzsche once said - "That which does not kill us makes us stronger." The light version of the chart above had been shown to you in May.
The euro is still sitting on the very important trendline (dark gray) and the similar price action was earlier when the price approached this trendline. I mean the same combination of lower highs amid higher lows. The RSI has the same divergence as in 2001. This time, we have a flatter downtrend (orange) and the RSI is still below its trendline unlike in the previous case.
Among the big four Eurozone economies, i.e. Germany, France, Spain and Italy, it’s clear which two are the growth drivers. Of the others, that is Spain and Italy; Italy was considered to be the more stable. Spain’s bonds were deemed riskier and its banking sector weaker. But that is a thing of the past. As it stands today, Italy has overtaken Spain to become the weakest link among the Eurozone’s largest economies, with a banking sector desperately in need of a bailout. And if Italy’s banking crisis is a rerun of Spain’s, we can certainly expect some troubles in the Eurozone and, consequently, for the Euro.
Spain vs. Italy in Two Charts
When we compare data on the Italian economy vs. the Spanish economy, we can see an interesting picture emerging. When we examine the trend in bankruptcies filed for both economies, it’s clear that both countries had relatively the same trend in bankruptcies until very recently. Bankruptcies in Italy have started to surge while bankruptcies in Spain have been decreasing.
In the bond markets of the two countries, a clear divergence is occurring. Credit Default Swaps for Spain and Italy, which had moved in tandem in the past (with higher risk premiums for Spain), started to diverge back in 2014. Credit Default Swaps for Italy are now much higher. Continue reading "Italy Overtakes Spain As Weakest Link"→
Despite the Federal Open Market Committee voting last week to maintain all of the Federal Reserve’s current rates, some market experts — including this one — are projecting that a rate hike is coming soon, and the Foreign Exchange market could see significant volatility because of it.
Indeed, as we suspected back on July 1, the Federal Reserve, in its release about the policy meeting held July 26-27, signaled that headwinds from Brexit are waning and pointed to diminishing near-term risks. But what does that mean, in practical terms? It means that the Fed is back in business: delivering mildly hawkish rhetoric, while preparing for the next rate hike. Continue reading "FX Volatility To Pick Up With Growth"→
A little more than a week ago, China released its data for second quarter GDP growth alongside other important data sets that, entwined, give us a glimpse into the health of the world’s second largest economy and a framework for FX strategy in the Asian space.
China’s second quarter GDP growth hit 6.7% for the second quarter year-on-year, the same growth rate as the first quarter and moderately higher than the 6.6% called for in Reuters’ consensus poll. The major contributor to GDP growth was consumption, a rather positive sign that consumers are becoming a more prominent engine in the Chinese economy. This was further enforced when China’s retail sales posted growth of 10.6% in June compared to 10.0% in May.
But on the flip side, there were some negative signs as well, and plenty of them. GDP growth was, indeed, driven by consumption but the growth in the services sector, or the tertiary industry as it is referred to, was 7.6% Year on Year. That is simply not enough to accommodate China’s weakness in manufacturing and not exactly in line with China’s growth plans. Continue reading "China Recap: The Good And The Bad"→
The Mexican economy has been remarkably resilient to weakness in the US. Mexico’s exports to the US amounted to $295 Billion in 2015, a staggering 77% of total Mexican exports. Under such circumstances, one would expect the slowdown in US growth in the first quarter to tank the Mexican economy. Instead, robust growth in consumer spending allowed Mexico to grow at a fair pace of 2.6%, year-on-year. But now, as the tide in the US economy turns, the Mexican manufacturing sector, which suffered during the first quarter, could recover. Mexican GDP growth will move higher, and monetary policy will turn tighter. And the main benefiter? It’s the Mexican peso, which has been undervalued for quite a while.
How US Manufacturing Impacts Mexico
Mexico’s exports to the US are varied, ranging from beef to oil, yet the bulk of its US-destined exports are manufactured goods. Vehicles, vehicle parts, tractors, trucks and computer screens are among the manufactured items, and the list goes on. Transports and Machines are the top two categories and amounted to $186 Billion in 2015. Continue reading "Mexican Peso Set To Rally Against EUR And JPY"→