Stocks, Commodities Set to Rise as China Loosens Currency
Stocks and commodities are set to surge today after China loosened
its reins on the Yuan over the week-end. Although the timing of the move by China to allow
its currency to appreciate against the Dollar came as a surprise, the action
followed months of serious negotiations between the U.S. Treasury and the
Global demand for goods and services is expected to increase
because the action by China
makes imported goods less expensive for Chinese consumers. A strong Yuan
compared to the Dollar should be most beneficial for U.S. manufacturers and exporters.
Investors are selling the Dollar this morning and aggressively buying stocks
and commodities. This theme is expected to set a strong tone for risky assets
this morning while putting pressure on the Greenback.
The September E-mini S&P 500 surged overnight through a
major 50% level at 1122.00. After building a strong support base since late May
and starting an initial rally following the easing of tensions in Europe, the
S&P 500 is expected to soar over the near-term as investors buy equities in
anticipation of improved future earnings in anticipation of greater demand from
Look for new higher support to establish at 1122.00 for a drive to the .618
retracement level at 1143.00.
The September E-mini NASDAQ looks even stronger this morning
after taking out its Fibonacci retracement level at 1935.00. Look for a support
base to build between 1898.50 and 1935.00 over the near-term. The daily chart
indicates there is room to the upside with the mid-May top at 1980.00 the
Look for the September E-mini Dow to test a .618 level at
10556 early in the session. The intra-day action will be determined by how
investors react at this level. There may be some light profit-taking following
the first test of this price level, but overall demand should underpin the
market, preventing a sharp sell-off. In the worst case scenario, investors
should watch for a test of the 50% level at 10375. A test of this level is
likely to attract fresh buying.
In summary, the fundamentals are there to trigger a huge
breakout rally today. The question is whether U.S. investors will buy strength on
the opening this morning or wait for an intraday set-back.
September Treasury Bonds gapped lower overnight as demand
dropped for so-called safer assets and increased for equities and commodities. Traders
should look for selling pressure throughout the day with an acceleration to the
downside likely if the last main bottom at 122â€™15 is violated. The daily chart
indicates there is plenty of room to the downside with 119â€™22 a potential
downside target over the near-term.
The weaker Dollar is triggering another rally in August
Gold. Last night gold made another new term high. Minor support is likely to be
established at the two former tops at $1254.50 and $1251.40. Look for weakness
to develop only if this support zone is violated. Volatility has been light,
but with prices moving higher, gold may top out if investors feel their chances
for a good return on investment is low. If this scenario develops, then look
for money to shift out of gold and into equities.
September Crude Oil is trading sharply higher this morning.
Overnight the market tested a major 50% level at 80.88. Regaining this price
level and establishing support here should fuel another surge to 83.54. The
stronger Yuan should help to increase demand for global oil prices.
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