2022-09-26

Lows Beget Lows; Yuan Deval to 8.28 on Deck

I talked about what could be next for markets this weekend. I posted charts on transportation companies, an airline, high yield and chemicals. There is a clear case for a bounce on these charts because they're at major support. If I have to condense the market into one chart, I pick BTC. My long-term support line breaks around $17,800.
The other charts to watch are currencies as I laid out in the "what's next" post. Almost all currency charts are either in "free fall" territory or coming up on major support and resistance. USDCNY is one day (at current volatility) away from breaking out. The target is around 8.10, but I'd wager the market tests the old peg area of 8.28 on a break. A 15 percent rally for USD from here, about 14 percent deval for yuan.
If this sounds crazy to you, consider this: yuan has mostly risen with the USD durign the bull market. Here's the returns for USD vs EUR,JPY, KRW and CNY since September 2018:
A yuan "deval" is not so much a devaluation as catching up with the decline in export currencies. I'm not predicting this will happen now, though I think it is highly likely for this cycle. If the dollar keeps running though, that is where the yuan is headed.

Finally, long-term government bonds continue their slide.

The 10-year bond futures contract has reversed all gains since 2008.
In conclusion, the market is poised for a bounce or a collapse and that's it. Until there are concerted reversals in currencies, bonds and stocks, then do not expect a sustained rally. Rallies will terminate within hours or days until this happens.

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