Commodity and FX Impulse Moves
We review some charts, starting with commodities that are precariously close to signalling a breakdown. The weakness became pronounced after China's PPI, CPI, and the disappointing Aggregate Finance data (this needs a separate section).
If China's recovery continues to be disappointing, then the deflation of exports and a long position on commodities will be a big problem for the rest of the world.
Add to this the impulse move higher in US Dollar currency pairs.
These Impulse price moves are impossible to ignore, especially if we don't see an equally sharp recovery in the short term. Then some assumptions about China and its impact on the rest of the world are very wrong.
It makes me nervous when analysts are at a loss for an explanation for sharp price drops; it brings out my worry beads.
The note covers Copper, Silver, Iron Ore, Bloomberg Commodity Index, Deutsche Bank Commodity Index ETF, EURUSD, GBPUSD, USDCNY (a Copy / Paste from the 11th May 12, 2023, Substack Chat),
Gold and Bitcoin need just one liner: It is not responding to lower Nominal and Real Yields and the falls in Regional Banks.
Copper Chart One
I had viewed the consolidation from 23rd January 2023 to be in the form of a bull flag. This view got shattered by an impulse drop below 3.815 Support on heavy volume.
We closed the below Monthly Pivot S1 support.
This is not a favourable situation.
For the Copper outlook to improve, prices must recover strongly above the resistance level of 3.815.
Copper Chart Two
The RSI of 31 is oversold, and prices are testing the 20th April 2020 uptrend. A close below 3.65 today would indicate a move toward 3.40.
A note: most significant moves to the downside come when the market is oversold, and there is no momentum divergence like now.
Silver
The uptrend appears as a bear flag and not a bull uptrend. The rejection at Quarterly Pivot R1 and yesterday's 5% fall add to this thesis.
Prices should test the 61.8% mid-trend line and Quarterly Pivot P 22.85 as the initial retracement.
I prefer lumping Silver with Copper rather than Gold, as much of its mining is a byproduct of Industrial material mining.
SGX China Iron Ore Futures
The prices are recovering after a 5.27% fall, and there is a positive momentum divergence.
The bounce is likely to be short-lived, and a move to 83.30 is likely.
Bloomberg Commodity Index Daily
We seem to be negating the Island reversal thesis as prices gapped lower towards Monthly Pivot S2.
A break below would indicate the falling wedge thesis is wrong.
Bloomberg Commodity Index Weekly
If Quarterly Pivot S1 is breached, there may be a significant drop to the 95.00 area. The falling wedge pattern with three or more touchpoints is still valid, but only just.
Deutsche Bank Commodity Index ETF
The Commodity ETF gapped down, but the island gap is still intact.
A Close below 22.47 and a break in Bloomberg Commodity Index would be very bearish for Industrial Commodity Complex.
EURUSD Chart One
If we can close here or lower, we have a Weekly Evening Star (a three-candle bearish candle not shown).
We closed below the Daily Ichimoku Baseline, indicating a reversal most likely occurred. You will also notice Momentum divergence to price as it has made lower highs since 2nd February 2023.
Stoploss on the view: close >1.0975.
EURUSD Chart 2
We concluded trading at the Ascending Wedge and 55 EMA. If there is an impulse break, it could lead to a quick test of 1.08, providing assurance.
It's important to note that Ascending Wedges are bearish patterns, and if there is an impulse break of the wedge, it could signal that 1.0225 is the possible target.
GBPUSD
For three days in a row, the GBP attempted to surpass the ascending wedge and Monthly Pivot R1 resistance. However, it was unsuccessful. Yesterday, the decline was impulsive, but it stayed above the Ichimoku Baseline.
Unfortunately for GBP, it did form a bearish Evening Star pattern.
The GBPUSD RSI momentum has been diverging from price since 22nd December 2022.
We watch the September uptrend and Monthly Pivot. The setup is there for the prices to move lower in an impulse wave to a minimum target of 1.2150.
AUDUSD
The shape of H&S's right shoulder is changing, but the pattern is still recognizable. It is worth noting that the value of 0.6575 is a crucial support level, while 0.68 is a significant resistance point.
USDCNY
Yesterday, the PPI and CPI data suggested that the USDCNY should have become stronger due to deflationary factors. However, the market dynamics of growth signals and lower yield spreads are more influential.
The market seems to be consolidating and not forming a Bull flag pattern as I initially expected, but a bullish setup nonetheless. I am still anticipating a test of the 7.04 area.
I did question myself if it is possible that this could be an Inverted H&S pattern, but it's a bit of a stretch. If the Monthly Pivot P holds, it could confirm this.
Additionally, I've included the USDCNH chart below for offshore trading purposes.
USDCNH
Additional Text and Charts were added at 17:15 GMT
There is a good chance that another shoe is about to drop as USDSGD and USDTWD seem close to breaking out, which could have implications for Asia FX (ADXY) and the US Dollar's overall performance. This raises the question of what unknown-unkown factors may be at play. I'm sorry, these two charts were not in the Note this morning because the charts for the note were done last night and this morning.
USDSGD
USDTWD
Takeaways:
Upon thorough analysis of the note, it is imperative to probe the potential linkage between the dollar's fluctuation and the decline in commodity costs.
China's exports stay competitive thanks to lower real exchange rates (negative PPI and lower CPI). The country has a surplus of production capacity that it needs to export.
If unemployment rates rise or there is a decrease in industrial production and exports, I anticipate that policymakers will take significant actions to address the situation.
China will remain pivotal to Global Macro, not just the US Debt limit.
Should there be a correlation, it is of utmost importance that US Dollar proves to be the Ultimate Safe haven, not Yen, Gold, or Bitcoin.
Yes, I did use the AI tool to try and improve my writing. Let me know what you think.