Dollar recovered from the exaggerated panic at the start of last week. Outlook is still constructive. Here is an overview of the technical condition of currencies, bonds, oil , and S&P 500.
Steep losses in the dollar, stocks and commodities, for sure, but does it really signal a systemic crisis?
China, Australia, Brazil, Canada, Sweden - it is beyond us how anyone can declare the crisis isn’t spreading. Be prepared – there are going to be lots of opportunities to both make and lose money. But first, you have to recognize what is happening.
Near-term dollar outlook, with some views on oil, Treasuries and S&P 500 thrown in for extra measure.
While making its devaluation announcement, Beijing said that it wanted its currency "to reflect fundamentals" and to no longer simply mirror the movement of the dollar. It acknowledged the fact that its peg to the dollar was problematic and that it wanted a better, more natural mechanism. This is the key to understanding the announcement: The Chinese are preparing for a time in which the financial world does not spin in orbit around the dollar. Such a reality must make us think about the future.
"[The] devaluation of the yuan risks a new round of competitive easing that may send currencies from Brazil's real to Indonesia's rupiah tumbling by an average 30 percent to 50 percent in the next nine months, according to investor and former International Monetary Fund economist Stephen Jen."
When China sneezes, the world catches a cold. Alternatively, when China devalues, the rest of the (exporting) world scrambles to not be the last (exporting) nation standing, and to do so next, before everyone else does. We give Russia, Thailand and India (as well as the rest of the EM countries, actually make that all countries, the US included) at least a few days (hours may suffice) before they all realize that in a beggar-thy-neighbor global currency war, where the ZIRP (or NIRP) liquidity trap is already stalking at least half of the entire world, there really is no choice.
To help remind readers of what happens when the entire world engages in wholesale currency war, here is a complete list of all the recent FX interventions, courtesy of Stone McCarthy.
The demise of the dollar has been greatly exaggerated. Here is how I see the near-term outlook.
A non-bombastic analysis of the events and data in the week ahead, with insulting anyone or resorting to conspiracy theories.
Regardless of where one thinks the dollar is going in the long-term, here is a discussion of where it will likely go in the short-term.
The dollar's pause may be short-lived. Divergence still the key driver.
China will be a net buyer, and a net importer of physical gold for years to come. In and of itself that won’t necessarily cause a sharp rally in gold prices anytime soon, but gold acquisition from the Chinese state and her citizens, as well as emerging market central banks the world over will continue to provide support for the physical gold market. Those that have sold gold in the past few days (and there have been plenty in the ETF and futures markets) as a result of the “disappointing” number out of China may have just caused the capitulation event that typically marks the bottom of any bear market.
The dollar made new multi-year highs against the dollar-bloc and is bid against most major and em currncies. Why?
Non-bombastic look at the price action and speculative positioning, with the hope of anticipating next week's developments.