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.

A Look at East Asia Via AUD

I'm not predicting AUD strength, but I look at charts of AUD crosses and wonder. With the RBA relatively hawkish, what if AUD loses less than expected in a USD rally? Many charts would break bullishly for both AUD and by implication, USD should USDAUD be also climbing. RBA Surprise Rate Hike

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...

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.

How's the EM Rally Going

Businesses prepare for grid collapse in South Africa

More here: South Africa has collapsed.

Lookback: Weird Signal from HKD

I looked at HKD today because of the wackiness in JPY post BoJ intervention. I noticed a dip right around August 15, which was right as the stock market was peaking. Looking back, two signals were clean, one was false. Interested to see if it signals again.

Chinese Intervention Hits DXY

I wouldn't be shocked if the moved in DXY is entirely the sterling bounceback and Chinese intervention. USDJPY hasn't joined yet. If it turns, there's a dollar pullback. If not, there's still a risk of East Asian currency meltdown.

East Asian Currency Meltdown

I measure a 1000 point move from the top to bottom of the triangle (counting the 1997 peak down to 2007 low). If the whole triangle, the target would push out towards 2500. The former seems "insane" enough for me.

Singapore dollar also looks in trouble if USDSGP can break out of that pattern.

Everybody Wants to Buy the Dip

ZH: Here Comes The Open Revolt: A Reeling Europe Lashes Out At The Fed For "Bringing Us To A World Recession"

At least that was the case until now: because today, in a startling outcry breaching the unspoken protocol of "no dissent, never dissent", Josep Borrell, the high representative of the 27-member EU bloc, lashed out all too publicly at the Fed when he said that central banks (across Europe where the recession will be far, far worse than in the US) are being forced to follow the Fed’s multiple rate rises to prevent their currencies from slumping against the dollar, and compared the US central bank’s influence to Germany’s dominance of European monetary policy before the creation of the euro.

Of course, back then the solution to the super deutsche mark was simple: pool all nations under a common currency umbrella, even if it means misery for the less productive, and less mercantilist countries (hence the neverending European sovereign debt crisis which remains in hibernation only thanks to the ECB's bond buying). This time however, there is no simple solution taking advantage of gullible states, instead now that they've broken the seal of silence, the "leaders" of Europe admit to just how powerless they truly are when the custodian of the world's reserve currency has to do what's best only for itself, allies and friends be damned:

“Everybody has to follow, because otherwise their currency will be [devalued],” Borrell said to an audience of EU ambassadors, the FT reported. “Everybody is running to increase interest rates, this will bring us to a world recession.”

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

How many people who say the reserve currency status makes USD strong also realize every other nation on Earth is printing money more aggressively? The moment the U.S. starts acting in its own interest, the world squeals for more U.S. money printing. The Bank of England extended their new "temporary" QE program today...

The path to total economic devastation is becoming clear. A Federal Reserve pivot in any form will reignite speculative activity. It will reward buy-the-dip. This will produce a mind-bending rally that could wipe some bears out. Apres cette...

Crude broke down yesterday. Along with my horizontal, I'll be watching $90.50 on crude this morning. Always pay attention when as asset is behaving well with respect to chart, particularly wildly psychotic assets (chart-wise) such as crude oil. I'm quite heavily short energy after adding more weekly puts on XLE yesterday.

Gold also behaved extremely well yesterday. First it hugged my higher horizontal (from my SlopeChart) and then held the final line on this chart.

BTC is hanging on. At this point, I admit to having some doubt that it will crack, but that's why its breakdown will be part of a larger capitulation event in the market. I'm not alone in thinking that.

I don't think this line is extremely important for the ES, but this is the last line I have on the chart. Below it, the "support" is the prior 52-week low made at the end of September.

There are still shorting opportunities for aggressive investors. XLP and XLE look particularly vulnerable, as do bank stocks if their earnings reports are negative. They start reporting on Friday. Another important report this week is Domino's on Thursday. I have puts on it and McDonald's. I don't know if the stock will breakdown this week or not, but there's a monster bearish setup. McDonald's is still below a long-term support line. It's the type of setup I want a position on. If Domino's guides lower or misses because of labor costs, the entire restaurant sector has bearish chart setups.

Finally, it seems that everyone wants to buy the dip, including myself and many bears. Everyone fears a Fed pivot could catch them mispositioned. If the market makes everyone lose, then maybe something very scary is about to happen that will make everyone fear holding stocks. Or something very good will happen that catches all the bears off guard. I lean towards the former rather than the latter, but the CPI is coming this week. Be on alert.