I was reading an article in a well recognised daily financial publication last week showing the movement of the CNY versus the USD, and thought that should the Chinese monetary authorities decide to reverse the steady rise of the Yuan that has occured since 2005, this could have quite a material impact on the dollar index, and may be the last blowoff move required before a re-newed phase of dollar weakness can begin.
These thoughts also tie in with an observation that I have made over recent sessions as I have been sat in front of my terminal at work, witnessing the strength in equity markets and the selling of the USD. To this end I decided to take a look at the S&P500 and saw the formation of a pattern that in the world of technical analysis is termed an inverted head and shoulders, with a 'neckline' as shown in the chart above. A break of the 900 area could thus trigger a substantial move higher. However, these patterns are really only good for offering targets in the event that they work, and in my opinion sometimes the real wedge is to be made when they fail. In this case a failure would target a return to the annual low.
Thus could it be that the fate of the USD and S&P are inexorably linked? There is a degree of logic in that many of the constituents of the S&P500 gain large portions of their cashflows from operations external to their domestic US markets. Thus when they repatriate these cashflows for the purposes of producing finacial statements, a weaker USD equates to a higher cashflow and thus we have the link to stock prices; a reason why excessive USD strength is unlikley to be favoured by business leaders. Could we be entering a period when s/he who has the weakest currency has a chance of some re-orientation of GDP towards net exports? Afterall, the consumer is dead.
No comments:
Post a Comment