FX Charts Reaching Turmoil Zone

The Case for Deflation

The market is in a curious state with some sectors such as oil and oil serivces hinting at bullish breakouts and bonds hinting at bearish breakdowns. How about the contrary? The charts say the market isn't far from deflation either. If crude reverses, the outlook for inflation dims fairly quickly. I'm not going into monetary data in this post, only looking at some assets that should be doing well if inflation, specifically commodities prices, move higher.

Crude oil is about $10 away from a clear bullish breakout, but it is battling at a resistance area. It is $20+ away from a major bearish breakdown.

Rio Tinto has a potential measued move to $100 or its done and topping.

Freeport-McMoRan has what looks like a diamond pattern to me. Moves out of diamonds are often huge, powerful moves.

Emerging markets, of which China is the main component, are less than 10 percent from major support.

Copper is already well into a rollover and it leads oil.

Not enough to call it a serious break yet, but EURUSD went through support on Friday. The euro is keeping the U.S. Dollar Index in a bearish pattern.

East Asian currencies are rolling over. It won't take much of a push open a retest of the dollar's 2022 highs. An extension of the current dollar rally into Monday might be enough, as it would be enough to carry EURUSD below support...

Of Australia, Brazil and South Africa's stock markets and currencies, only Brazil's currency looks strong. You'd think it would be more than 1 out of 6 if a commodities bull run is coming.

Gold has a bullish look to it, but it often falls in the first part of deflationary waves. A pullback towards ther $1550 to $1600 area might be the buy of a generation if secular disinflation and the 40-year bond bull market have ended.

I've been focused on rising home prices and affordability, but I didn't pay close enough attention to the 2006 top. The Case-Schiller Index spent about 13 months topping (the low between the two tops broke in April 2007, after the initial March 2006 peak) with a double-top pattern. A precisely similar top in time would see home prices implode this month because Black Knight has said, and the trend in Case-Schiller, points to a new high in July. Case-Schiller will report August data in October. Analogs need not be precise though. As long as prices sink in the autumn, it'll be a very similar top. The prior top was followed by a 50 percent decline.

More Important Than the Dollar

Everyone is focused on the dollar most of the time and they're right to.

If the yen weakens much further though, it is going to become the story.

Something Brewing in South Korea?

The won looks weak, with a possible major bearish breakdown in play. It only looks good versus the yen.

Long EAFE, But Maybe Not Yet

The relative turn from S&P 500 (Nasdaq) leadership to MSCI EAFE (MSCI Emerging Markets) leadership has probably started, but the first stage might still be bearish for stocks. At least it was in the 2000 and 2008 turns...

China Cuts RRR Again

Yikes.

Go Time for Bears if 12000 on NQ Falls

NQ still battiling in that area. I'm encouraged by the collapse in the peso though. It gave way intraday and is below where I first said to short it.

Nice Wicks on the Peso

I am focused like a laser on USDMXN because it is very correlated with the VIX Index over the longer term and it looks a hell of a lot like February 2020 with a break below pattern (the green line in 2020) before an explosion higher. There are also possible double-wicks off support if today's move holds.

USDKRW

Back above resistance. A move above 1345 will open up a renewed bullish outlook for the cross, and would be bearish for global financial markets.

Dollar Echo

Santiago Capital posted a chart of the dollar showing now looked similar to the early 1980s. I tried layering it and didn't see it match too closely, but then I laid down Fibonacci lines and saw this:

BTC, Apple and Emerging Markets

BTC and Apple are the two most important chart junctures for the bear market right now. Not more important assets than the U.S. dollar or bonds, but they are sitting right near major support lines and both are core assets for the speculator and investor classes. If these charts break their support lines, it's a big bearish signal. Conversely, with the maket going on nearly one-month of a rally, failure to break lower here would provide a new bullish catalyst.

Emerging markets are also sending a bullish signal. However, they sent a false signal in 2008. Not for themselves; they didn't make a new low after bottoming in the autumn of 2008. Their low signaled the coming change in leadership, but U.S. markets wouldn't make a low until March 2009.

The Korean won is rallying and the South Korea ETF is nearing its former long-term support. If emerging markets have legs, it looks like South Korea is the leader. If this rally is going to give way, South Korea is also reaching a spot where a reveral is likely.

CNY Down

USDCNY 8 is the chart and fundamental target in the near-term. If CNYJPY 21 is a ceiling, and the target for USDJY is 175, that is 8.33.