Stock markets the world over continue to rise. However, there is a twist to the situation now, and that is that China has warned its producers to not overproduce. Chinese producers have already been hit by a fall in demand and exports are down. Since inventory levels are high, the government has made it clear that they prefer the unsold stock to be cleared first.

This, in my opinion, could force Japanese investors to pull their funds out of the Chinese stock market, thereby bringing the Chinese stock market down. Japanese investors had been investing heavily in Asian stock markets such as those in Taiwan, Hong Kong and mainland China. So to begin the process, they (the Japanese investors) had yen, which they converted to yuan and bought Chinese Assets. Now they will sell Chinese assets, take their yuan and convert them to yen.

Another scenario that has been in place since March is buying high-yielding currencies such as  the British pound and the Australian dollar, and selling the US dollar and the Japanese yen. Investors are doing this not only to take advantage of the high yields, but also to take advantage of the currency fluctuation. Now this process could reverse.

September and October are also usually the months that stock markets crash, though the Dow Jones Industrial is more or less certain to cross the 10,000-point level. The US dollar index however is making a double bottom. This is normally bearish for commodities.

All this means that it is likely that the US dollar will be strong against all currencies. It's possible that this will not happen against the yen. However, I feel that the USD/JPY will go to 115 as stated in my last write-up. A good level to buy USD/JPY is 92. Gold looks very bullish, but it is best to be cautious. The USD/PLN looks very bullish to me and I would expect it to move to 3.5 in September to October. I had expected this move to happen in June, however in July the market moved sideways.

Capital markets have been quite active over the last few weeks, but currency markets have been quite range-bound, with the US dollar losing some of the strength it gained after the crisis hit.

I expect this to be the bottom for the USD's weakness. In fact, I consider this month quite crucial for the USD.

The British pound was again difficult to analyze, due to heavy cross-rate activity particularly against the Japanese yen. However, I would hazard considering the current highs as the top for the GBP and hence a good opportunity to sell.

I would also change my analysis on the USD/JPY and expect it to move to 115. Earlier I have been recommending selling USD/JPY for a target of around 80 yen.

Likewise, for USD/CHF I expect this to be the bottom and hence an upward movement should start.

Having said all of that, a lot will depend on the upcoming Jobless claim numbers and non-farm and unemployment data. If the data is too negative, the USD could go into freefall.

The G20 is one event to watch, but its still far away. Moreover, US policy continues to support a strong USD and hence I do not see how agreement could be reached for another reserve currency.

Since my last post, the G20 moved a step further by allocating funds for developing countries. However a core issue demanded by China and some other members was not discussed -- namely a Global Reserve Currency. We have to wait until the next G20 meeting to find out what will happen in relation to that. Some experts believe that the USD, the euro or for that matter any other currency by itself is not sufficient to create confidence among all members.

Nineteen major US banks went through the stress tests and it seems that only $75 billion has to be raised in order to protect these banks. President Obama has created some confidence by taking this step.

Some of the recent macroeconomic data, including the non-farm payroll data -- which showed some slowing in the pace of job losses -- indecates that the recession is probably bottoming out. At least that is what the data coming out in the last few days suggests. However, though I have no data to support otherwise, reading the markets and instinctively speaking, I feel a lot more is yet to come.

In other words, I don’t see a bottom yet, and even if a bottom is in place, I expect the market will test the bottom once again.

Currently among currencies the best pairs offering a trade in my opinion are USD/JPY and the cross of GBP/YEN.

GBP/USD: I expect the GBP to start dropping again. I would expect 1.6280 as the maximum on the top side.

USD/CHF: I expect the USD/CHF to be a good buy at 1.790, though one could risk buying a bit earlier at current level of 1.0820-1.0880

EUR/USD: It is difficult to say right now how this will play out, but it could come down from the current level of 1.3910-1.4020

USD/JPY: The yen has failed to cross 105. This is the best trade for now. A sell anywhere between 95.50 and 96.50 for a target of 80 yen is a good trade.

GOLD: This is also difficult to analyze, but I would expect a downward move to around the 770 level.

OIL: Oil has been range-bound between $50 and $60 per barrel, but it has now crossed $60 and hence it is likely the range could shift higher.

USD/PLN: I expect it to move to zł.3.80-4.00

DJIA: The Dow Jones is toppish and a failure to go higher from current levels could bring it down to its previous lows again.

PLN: Having gone above 3.3 against the USD, and now even above 3.5, completely changes the scenario from a technical perspective. I would now expect the following scenario:

1. USD/PLN now has a major support at 3.5 and hence is likely to move higher to 4, then 4.2 and even 4.5 in the near term (a time frame of two months).

2. Fundamentally speaking, the CHF/PLN reaching 3.2 has put considerable stress on home loans, and heightens likelihood for defaults on home loans.

3. The sharp depreciation in the PLN has also affected businesses.

4. With the government doing some verbal intervention and defining the level at which it would intervene (if the EUR/PLN reaches 5); this only tells me that the situation is far more serious than it seems. Interventions have never worked in the long term. Hence, I would expect EUR/PLN to cross 5 in all likelihood.

5. It is also rumoured that Mr. Soros is shorting the PLN. If that is true, the signs are ominous for the PLN. However, exporters will benefit.

GBP/USD: I expect the GBP to move higher to around the 1.5 level for now.

EUR/USD: I expect EUR to move higher to 1.3/1.32

USD/JPY: This is much more difficult to analyze. If it holds at 98/100, we can see a sharp drop, otherwise it could go to 105 and even 110.

Gold continues to be a favourite and I see $890 as the price to buy again for a target of $1,050.

EUR/USD: As long as the EUR/USD stays above 1.2850, it’s a buy. This is a crucial level and if broken, the euro will take some time to recover above 1.2850. The first target from 1.2850 is 1.3120 and if that is crossed then the euro could reach as high as 1.38.

USD/YEN: Continues to remain a sell. The target is 85 and then 80 agaist the USD. However, at 85 Yen there is a chance of the Bank of Japan stepping in.

GOLD: Gold continues to be strong, and if it moves higher than 870, then a rapid move to 1,000, or even more, can be expected. On the downside, I see gold well supported above 800 levels.

GBP/USD: GBP has achieved its target of 1.4 and has moved to its next target of 1.36/1.3580. From 1.3580 I expect a bounce to about 1.4 or 1.42. At that point, I expect the GBP to continue downwards again to 1.3.

OIL: Has more or less reached a bottom and can move higher to around $50-55 levels.

Dow: In my opinion, the Dow is highly oversold now and a move from 7,800 to 8,800/9,000 levels can be expected. This, however, does not mean that the Dow has found a bottom.

USD/PLN: Has reached its previous high of 3.3. I do not see the PLN getting weaker. If the EUR/USD rebounds from 1.2850, I would expect the PLN to move to 3 or even 2.90 against the USD.