What a week. I have spoken on this blog regarding the social, political, and social crisis’ which will create a volatile and unstable environment… it seems we have entered this period.
Youtube video for this blog: https://youtu.be/r9vJs8I3hNY
The week began with a huge stock sell off on Monday. The subsequent days saw a rally up to Friday, where we tested an important zone, which we will discuss when we look at the charts.
Steve Mnuchin came out saying that he will be going to Beijing but doesn’t know when during the week. And then, on the final hours of trading on Friday, word came out that China trade talks have stalled!
There is really no winner in a trade war. Consumers on both sides will pay for it. I have stated that the Chinese have the edge with the ability to sell off US treasuries (which requires them to hit US Dollar demand first- Enter Russia and China to Venezeula and using Iran for a key node AND President Putin getting close with Saudi Arabia and Crown Prince Mohammed Bin Salman).
However, the new NAFTA (or USMCA: United States- Mexico- Canada Agreement), may be a saving grace for the US…well technically Mexico. It was announced on Friday that US tariffs on aluminum and steel from Canada would be dropped within 2 days, indicating that this new North American Free Trade agreement is back “full steam ahead”.
It seems that Mexico will be the real winner here. Geopolitical and Economic Analysts are speaking about how the US now can import products they once imported from China, from Mexico. Mexico will be able to provide to the US the materials and goods that the Americans have slapped tariffs on China for. This means that supply chains may move to Mexico and we will see an increase in investment in Mexico for factories and workshops etc. Mexico will be the real winner in this trade war.
On the energy front, Oil supply keeps coming in higher than expected indicating a supply glut, yet Oil prices remain buoyed on geopolitical tensions. It is coming out more and more, that a strike on Iran will be happening sometime in the near future. To be honest, it is beneficial for America in that it is a way to ensure Dollar demand remains.
Currently, some European nations, Japan, South Korea, India and Turkey are buying Oil from Iran, who do not take US Dollars for Oil payments. As the US Dollar gets stronger, this option to purchase Oil from Iran will be more sensible for many nations. In fact, the Saudi’s may threaten to drop the Dollar because they are losing market share to Iran! However, because of the Petro Dollar system, Saudi Arabia has a huge influence on American geopolitical and foreign policy. America therefore may strike Iran to protect the US Dollar and to keep Saudi Arabia pleased.
There is precedence for this. Iraq and Libya under Saddam Hussain and Qaddafi both dropped the US Dollar for Oil, which threatened Saudi market share. Both were dealt with. Iran is a much more able opponent, and has Russian and Chinese support.
The Americans can also ensure Venezuela maintains the Dollar…which would mean Guaido would have to pull a coup. The Russians and Chinese and Iranians support Maduro because I believe they will also ‘encourage’ him to not accept US Dollars for Oil. The Americans may be forced to strike Venezuela as well (would get backing from Brazil and Colombia), but there is a chance of hitting Russian and Chinese troops stationed there. There is a better probability to take down Venezuela through financing the opposition (through NGO’s of course) than there is to pull off a coup in Iran.
Again, the US military is essentially the branch of the Federal Reserve. The US must maintain this ‘exorbitant privilege’ of the US Dollar being the reserve currency to allow the Fed to print Dollars and also the privilege of not caring about government deficits and large debt.
This week will be a big week for markets. They are at very important zones. It seems like I say this every week, but these are the times we are living in.
- Saturday: Australia Federal Election.
- Monday: Powell Speech.
- Tuesday: RBA Minutes, Governor Lowe Speech, GBP Inflation Hearings, NZD Q1 Retail Sales.
- Wednesday: GBP CPI (April), FOMC Minutes, CAD Retail Sales (March).
- Friday: US Non Defense Capital Goods ex Aircraft (April).
A lot of equity charts look similar. I will only post a few here, the rest will be covered on my Youtube video. Firstly, for the S&P on the daily chart, we are approaching a major flip zone. It will be clear on the 4 hour chart which I will post beneath. What is key for this daily chart is that we have not created a swing in this downtrend yet. We are now testing the 61.8 fib level. Watching to see if we see a rejection here. The more conservative approach though would be to wait for the 2800 to be taken out so we have a lower low (which confirms the lower high).
The 4 hour chart has made higher lows. There is the flip zone though that needs to break. Watch for this 2890 zone to break.
It is being said now that “1 tweet a day, keeps the bear market away” referring to President Trump’s twitter account. It seems that next week is just setting up for President Trump to tweet “China deal break through etc” or “good telephone discussion with President Xi” after reports stated that trade talks have stalled. Keep an eye for this.
The Nasdaq and US 30 are similar in nature to the S&P.
This is the Nikkei on the 4 hour chart. After a nice downtrend, we have seen a bottoming with a higher low. I am waiting to see if we break the 21400 level for a continuation.
One thing to note is that the Chinese markets look more weaker than many of the western equity markets. This gets interesting when discussing if US equities or Chinese equities lead or lag.
The French CAC 40 could not break into all time new highs. Similar to US equities where we are testing a flip zone. Interesting, if we reject this zone, then we can form some sort of head and shoulders pattern.
Australia 200 index is playing with all time new high zones. If we reject from here, I would like to see the 6230 zone break. Ideally, would like to see some sort of pattern here.
US Oil had a break which was rejected, and then broke above again but could not sustain momentum above the 63.30 zone. I am watching to see if we can make a higher low. If you look at this move up so far, we have not made a higher low, so would like to see this. Remember this higher low is confirmed once we break and close above the highs, above 63.30.
The US Dollar held the support zone we have been following for the past few weeks. Now we are awaiting for a break to confirm this higher low. If we break above the 98.20 zone, then the big 100.00 level is next.
When I see this, it makes me worried about what is coming down the pipe in terms of geopolitics and other issues. Remember, problems in the world exacerbate when the US Dollar gets stronger, and I have been saying that it will. Money will flow to the US Dollar because there really is nowhere else to go. It is the best looking of the western currencies.
EURGBP is a trade that is in a mid trend set up. We broke above the 0.8675 zone and have not looked back. We are starting a new uptrend, so I would like to see a wave in this uptrend. Essentially a higher low. Once this happen, I would ride the next few waves in this uptrend.
Some good Yen pairs, after a week of nice downtrends.
USDJPY has broken above a major daily zone around the 109.80 zone. We are creating a bottoming pattern here, with some sort of head and shoulders pattern. I have marked the 110.10 zone, but even waiting for the wicks at 110.20 to be taken out would be more prudent.
AUDNZD broke below a support zone we were watching last week, but did not gain momentum to the downside. We did reject the breakout zone though. Now I will await for the 1.0520 area to break before entering.
CADJPY a nice simple play and pattern. Seen a bottoming after a nice trend lower, and am waiting for the 82.00 zone to be taken out. Seems like it will be creating a head and shoulders pattern too.
EURNZD is one which requires a bit more patience. Been trending upwards for sometime, and we are approaching an area held by sellers. This can be seen with the large wick. Want to see the 1.7040 zone break before entering on a downtrend. Be patient with this one. It can still test the 1.7150 zone.
GBPAUD also one we were watching last week, and unfortunately did not have much follow through. AUD employment numbers also helped in creating a spike and more choppiness. Now awaiting for a break for more follow through.
Bitcoin hit our first zone around the 8450 zone as detailed in last weeks blog post. On the 4 hour, we created a topping pattern here which then broke down. Technically, on the 4 hour we should still expect at least one more wave down so we should be looking for a lower high.
Still a lot of talk on what created this big spike. Again, I believe Kyle Bass’ theory on China CCP members putting money into Bitcoin as a way to fight the Yuan depreciation, or even people trying to get money out of China due to the economic conditions there, is the best theory.