G20 to Ease Geopolitical Tensions?

The G20 in Japan was the story of last week, and will be the story for this week as well.

With so much happening in the world geopolitically, the G20 can be seen as a win for diplomacy.

Be honest, this was all about President Trump and President Xi. It was all about the US and China.

Treasury Secretary Steve Mnuchin said that the path to a deal was 90% of the way there, raising expectations and hope for investors/traders that some clarity could be reached by the end of the G20.

With the conclusion of the G20, it has been said that the US and China are re-opening trade talks.

This does not mean some sort of deal will be reached soon. As I have said, I still believe China can remain patient. What we are seeing in Hong Kong is due to the fact that mainland China is using Hong Kong to ship goods therefore avoiding US tariffs.

However, after the bailout of Baoshang Bank in China, many analysts and forecasters are saying that a Chinese banking crisis is imminent…also explaining why Bitcoin is spiking (Chinese money running into the crypto to get money out of the country).

Time will tell where these talks will be going. President Trump’s Achilles heel was the US stock markets, but it looks like he will be getting his cheap money again in the form of interest rate cuts. This is really what the market cares about. Cheaper money, and the stock market really being the only place to get yield. The US markets will remain buoyed by this, and the only thing that can derail this is if the Federal Reserve does NOT cut rates in July. We can debate whether it will be 25 or 50 basis points. I believe it HAS to be 50, and the market expects 50. In fact, the US markets may sell off if the Fed only cuts 25 basis points.

I will follow the Chinese banking sector. Again, the Chinese government has enough controls to keep the people in check, but a banking crisis will see more money leaving China through Bitcoin. The CCP may be forced to act.

Again, almost every where you look, we can expect that cheaper money and more central bank stimulus is what is coming.

In terms of this trade deal, we are seeing more of the same. Remember the times when President Trump would tweet about a trade deal almost being complete, and how he got great letters from President Xi… I think many people still want to see pen to paper, hand shake types of deals.

Yes, there seems to be some progress with some tariffs possibly being lifted, and Huawei being allowed to purchase from America. But I still think the market is really moving on the promise of rate cuts.

Speaking about rate cuts, the Royal Bank of Australia is expected to cut Australian interest rates from 1.25% down to 1.00%. In this same month, we are expecting the Fed to cut rates, and I believe we will also see the Bank of Canada cut interest rates as well.

If you remember to a few months back, I did discuss how Australia and Canada would have to cut rates. The best trades would be shorting the Aussie dollar and Canadian dollar, as well as buying Australian and Canadian bonds. Bonds seem the best bet as rates are still going to be moving lower.

In terms of the week, the first week of July will likely see some lower liquidity levels. Not only is it Canada Day on July 1st, but we have American Independence Day on July 4th. The US stock markets will be closed on July 4th, but the markets will also close early on July 3rd.

  • Monday: China Caixin Manufacturing PMI (June), US ISM Manufacturing PMI (June).
  • Tuesday: RBA Interest Rate Decision.
  • Wednesday: ISM Non-Manufacturing PMI (June).
  • Friday: US NFP (June), CAD Employment Data (June).

This is what it really is about. The market was front running a constructive and positive G20 meeting between the US and China… although I argue it really is still about the promise of lower interest rates. Seems that we are making a higher low here, which will be confirmed once we break and close into all time new highs.

Conversely, if we do see a sell off, I would watch the 2910 level for a break lower.

Other equity markets around the world. including China, seem ready for a move higher. Earlier in the week, equities showed signs that a downtrend was going to begin, but this has reversed, indicating very bullish sentiment. Here are some that look interesting to me and I would await a break above previous highs before entering.

US Oil is looking interesting, as price has hit a resistance/flip zone after a nice uptrend. I am looking for some sort of pattern and context here before shorting. We can say that we did take out previous higher lows, so we can await for the first lower high in the downtrend.

On the other hand, UK Brent Oil seems more advanced. We broke a flip zone at the 65.50 zone, and am now awaiting a bounce to create a lower high pattern. If we do see this, then we will have a head and shoulders pattern with the neckline at the 64.00 zone.

Gold may be showing a loss of momentum with what appears to be a lower high being formed. If we break below 1400, we can expect some more downside.

However, I must stress that on the daily chart, we have yet to make a higher low near the break out zone. So be wary. If this is the beginning of a new uptrend for Gold, we should expect to see a higher low being made.

Silver is also presenting us with a lower case. However the zone is a bit more choppy. We are looking at the 15.15 zone.

Interestingly enough, Silver has not had the run as its older brother, Gold. Leading many to believe this Gold run is not legit because Silver has not run.

I believe the environment for Gold is very bullish in terms of a confidence crisis and lower real rates ( pretty much yielding zero or even negative).

If you look at Silver on the daily charts, we see Silver has already made our first swing (higher low) and we can probably expect a second. However, there is a resistance/flip zone at the 15.60 level which needs to break first to confirm a second higher low. If this breaks, it looks very good for Silver.

The US Dollar as discussed in the previous blog post, has made the first lower high in a new downtrend, and we can expect a second lower high just following basic market theory. If we get the break below 96.00, then the big support zone at 95.00 is still our first target.

EURUSD back on the list after sometime. The 2 hour chart is showing signs of an exhaustion of the latest uptrend wave. However, I would watch for the 1.1350 to break.

Conversely, if you look at EURUSD on the daily chart:

You can see that we only made one higher low swing at 1.1190. Again, according to market theory, we should expect another swing, so this can happen once we break above 1.1410. If we do, 1.1550 would be the next target.

Not much to say on GBPUSD…will we finally get a head and shoulders break higher? This time on the daily chart.

If wee see equities rise, we will see a move higher in the yen pairs. A lot of them are already making their moves, however GBPJPY seems to be the one that is still lagging. We have a nice downtrend, now becoming a range at a support zone, and we expect either the downtrend to continue, or a new uptrend to be born. This range level at 137.15 is well established with 4 touches. A break out will be big. You can see that the retracements from the resistance zone are also getting less and less, meaning the buyers are stepping in.

A bit more of an exotic pair, but the USDSEK is showing signs of a downtrend exhaustion and a potential reversal. Watching the 9.3000 zone for a strong break. EURSEK is also similar.

USDCNH is very interesting given all the geopolitics happening. Also, I think what we are seeing in Bitcoin depends on what is happening in China. I have spoken about China undergoing economic and banking problems being a reason for Chinese money to run into Bitcoin, but there is also the Yuan devaluation theory by Kyle Bass. I made a video on Youtube video about this which you can watch here.

I do like this Yuan chart. It displays all the ways that the market can move. I am expecting a lower high here. If we do see a reversal with price breaking above 7.00 expect to see Bitcoin spike.

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