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.