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.
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:
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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).
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Fundamentally
speaking, the CHF/PLN reaching 3.2 has put considerable stress on
home loans, and heightens likelihood for defaults on home loans.
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The
sharp depreciation in the PLN has also affected businesses.
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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.
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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.
