Zambia’s central bank raised its policy rate by 50 basis points to 10.25 percent and warned it may have to raise rates further if “upside risks to inflation persist and keep inflation above the target range.”
It is Bank of Zambia’s (BOZ) first rate hike since November 2015 and the first rate change since February last year when the central bank paused after cutting the rate 5 times by a total of 575 basis points since February 2017.
Today’s rate hike comes after the bank three months ago warned it may have to tighten its policy if inflation looked to exceed its target range of 6.0 to 8.0 percent.
Zambia’s inflation rate rose to 7.7 percent in April from 7.5 percent in March due to the pass-through from a fall in the kwacha and higher prices of maize and its products and BOZ now projects inflation will exceed the upper bound of its target range during the next 8 quarters to Q1 2021.
“Lower maize output, continued elevated fiscal deficits, high debt service payments, and the decline in gross international reserves are among the key upside risks to inflation,” BOZ said, adding these factors have also exerted pressure on the exchange rate.
In late 2015 Zambia’s kwacha tumbled on low copper prices and a poor harvest, boosting inflation to almost 23 percent in February 2016. But the central bank’s tightening campaign, a rebound in copper prices and better harvest helped shore up the exchange rate and push down inflation.
But fiscal deficits remain large and debt service has been rising, taking their toll on growth, which the International Monetary Fund in April forecast would slow to 2.3 percent this year from 3.7 percent last year due to the impact of drought on agricultural output.
“Indicators of economic activity point to subdued economic growth during the first quarter of 2019,” BOZ said, with mining output, cement production, consumer spending and tourist arrivals all showing negative growth.
In the first quarter of this year the kwacha remained relatively stable but from April 1 to May 17 it fell by 14.9 percent to around 14.0 per U.S. dollar, with BOZ attributing this to elevated demand for petroleum products, reduced supply of foreign exchange and negative market sentiment.
Technical analyst Clive Maund charts gold and explains why he believes gold will turn higher later in the summer.
Gold and silver dropping back again late last week had investors in the precious metals sector feeling despondent, especially as their fears were magnified by at least one analyst calling for gold to drop to the low $900s or even lower, which is normal when prices sink, but our charts are instead suggesting that gold and silver are close to completing giant bottoming patterns that started to form (in the case of gold) as far back as 2013.
We can best see gold’s potential giant base pattern on a 10-year chart. It can be described as a complex Head-and-Shoulders bottom or as a Saucer, and is best considered to be both, or perhaps as a hybrid having the characteristics of both patterns. In any event, as we can see on this chart, it appears to be drawing close to breaking out of it, which will be a very big deal if it happens, because a base pattern of this magnitude can support a massive bull market. As for timing it could take several months and it is most likely to happen during gold’s seasonally strong period from July through September. To maintain the bullish case it must stay above the Saucer boundary.
Embedded within the giant H&S or Saucer base pattern, a fine Cup & Handle base has formed over the past year which we can see to advantage on the 1-year chart. The Handle part of this pattern may be regarded as a period of consolidation/reaction that has allowed time both for the earlier overbought condition arising from the rally from November through February to unwind and also for the moving averages to slowly swing into a much more favorable alignment, which has now happened.
On both of the above charts the drop late last week looks like “a storm in a teacup” or given the pattern shown on the 1-year chart, a storm just outside a teacup, and latest COTs reveal the reason for itthe Large Specs had suddenly become too bullish, which meant that they needed to be disciplined. While COTs have doubtless improved as a result of the drop on Thursday and Friday (we won’t find out until next week), the Large Specs may require some more time in the correctional facility, especially as June and July are not seasonally good months for the precious metals, so it would not be surprising to see some more downside during the weeks ahead before both gold and silver take a turn for the better from July onwards.
The following seasonal chart shows that June tends to be somewhat negative for gold on average, although it won’t be this year if Iran is attacked.
The conclusion is that the big picture for gold and silver continues to look strongly positive, although we may first have to contend with weakness between now and July due to the current downtrend coupled with negative seasonal factors until the end of June, which should present a window of opportunity to build positions across the sector ahead of the expected late summer advance that promises to be very substantial if gold succeeds in breaking above the key $1400 level.
Originally published on CliveMaund.com on May 19, 2019
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years’ experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.
1) Statements and opinions expressed are the opinions of Clive Maund and not of Streetwise Reports or its officers. Clive Maund is wholly responsible for the validity of the statements. Streetwise Reports was not involved in the content preparation. Clive Maund was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Charts provided by the author.
The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund’s opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund’s opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.
Iceland’s central bank cut its key interest rates, the 7-day deposit rate, by 50 basis points to 4.0 percent, sharply reversing its tightening bias from March, due to a swift deterioration in the economic growth outlook from a drop in tourism and exports of marine products.
It is the first rate cut by the Central Bank of Iceland (CBI) since October 2017 and the first change in rates since a rate hike in November 2018.
In it latest monetary bulletin, CBI slashed its growth forecast for 2019 to a drop in output of 0.4 percent from a previous forecast of 1.8 percent growth and 2018’s robust growth of 4.6 percent when a boom in tourism helped the country emerge from the ravages of the 2008 financial crises.
The central bank also lowered its outlook for growth in 2020 to 2.4 percent from a previous 2.8 percent but retained its 2021 forecast of 2.6 percent.
“But the outlook has clouded over,” CBI said in its bulletin, noting the collapse of budget airline WOW in March would lead to a further drop in tourist arrivals.
WOW already began downsizing its fleet of aircraft at the start of this year and the outlook is for tourist arrivals to decline by 10.5 percent this year from last year before slowly rising again in 2020 to 2.3 million, largely the same as in 2018.
“The outlook is highly uncertain, however, and the possibly of a deeper contraction and slower recovery cannot be excluded,” CBI said, adding tourism could be affected by the high exchange rate of the krona, uncertainty surrounding Icelandair’s use of its new Boeing 737 Max jets this summer and any impact from the recent temporary strikes.
In a second blow to its economy, Iceland’s exports have been hit by a collapse of the fishing of capelin, a small fish that grazes on plankton and krill at the edge of the ice shelf.
After the collapse of herring stocks in the late 1960s, Icelandic fishermen turned to capelin but for the first time since 1963 there is no catch expected this year, a devastating blow to local fishing villages and a hit to exports and a 0.4 percentage point loss to the country’s gross domestic product.
Although CBI expects the capelin catch to resume in 2020, it added this “assumption is highly uncertain, not least if rising ocean temperatures cause caplin spawning grounds to move outside Iceland’s fishing waters,” which would mean the growth outlook for the next 2 years could turn out to be overly optimistic.
The hit to economic activity will also create economic slack and curb inflation.
CBI now expects consumer price inflation this year of 3.2 percent, down from February’s forecast of 3.5 percent, 2.6 percent in 2020, down from 2.8 percent, and 2.2 percent in 2021, down from 2.4 percent.
Boosted by tourism and high wages, Iceland’s inflation rate rose to 3.7 percent in December last year, well above the bank’s 2.50 percent target, and in its previous policy statement from March CBI said inflation expectations topped its target and this could cal for a tighter monetary stance in coming months.
In April’ Iceland’s inflation rate rose to 3.3 percent from 2.9 percent in March while GDP grew 4.0 percent in the 2018 fourth quarter year-on-year, up from 2.5 percent in the third quarter.
The Central Bank of Iceland issued the following statement:
“The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to lower the Bank’s interest rates by 0.5 percentage points. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore be 4%.
According to the Bank’s new macroeconomic forecast, published in the May issue of Monetary Bulletin, the GDP growth outlook has changed markedly since the Bank’s last forecast. Output is now forecast to contract by 0.4% this year instead of rising by 1.8%, as was forecast in February. This deterioration in the outlook is due primarily to a contraction in tourism and reduced marine product exports because of the capelin catch failure. As a result, the positive output gap will close and a slack emerge in the near future.
Inflation measured 3.1% in Q1/2019 but rose to 3.3% in April. Underlying inflation has developed in broadly the same manner, and the difference between measures of inflation including and excluding housing is at its smallest since autumn 2013. The króna has held relatively stable in 2019 to date, and the inflationary effects of the autumn 2018 depreciation have thus far been smaller than anticipated. The deterioration in the economic outlook has caused the inflation outlook to change markedly in a short period of time, and the Bank’s forecast assumes that inflation will peak at 3.4% in mid-2019 and then ease back to the target by mid-2020.
Although the recently finalised private sector wage agreements provide for sizeable pay increases, the outcome was better in line with the inflation target than was widely expected. Inflation expectations have therefore moderated again after having risen markedly over the course of 2018. Market agents’ long-term inflation expectations have now eased back below 3%.
Although the economic contraction will be challenging for households and businesses, the economy is much more resilient than before. Furthermore, monetary policy has considerable scope to respond to the contraction, particularly if inflation and inflation expectations remain close to the target, as is currently envisioned. Moreover, the Government’s proposed fiscal measures in connection with wage settlements will pull in the same direction.
Near-term monetary policy decisions will depend on the interaction between developments in economic activity, on the one hand, and inflation and inflation expectations, on the other.
The euro is in for a busy day tomorrow. A host of key data points is scheduled for release during the day.
The most important ones are related to the largest economy in the eurozone. We had a bit of a positive surprise out of Germany lately, and we now get to see if that outlook holds.
The market has now digested all the major data for the first quarter, including somewhat lackluster corporate reports. So, getting May data should give us some insight into how the summer could perform. Let’s unpack this data-laden day, and see what could happen with the currency prices.
The Important Points
The day starts with the release of the final GDP number for the first quarter from Germany. This is a review of the data that was already provided. And it’s not likely to move the market unless there is a revision. Quarterly GDP change is supposed to stay at 0.4%, and annual at 0.6%.
We will then be getting some French data as well. However, the bits that are most likely to get market attention are the German Markit PMIs, and the Ifo Business climate survey that come out over the next couple of hours.
We can expect the EUR pairs to be quite turbulent during that period. To top it off, the day closes off with the release of the ECB monetary policy minutes, just to make sure everyone stays on their toes.
Market PMI Survey
Here we get a more intimate look into Germany’s industrial woes, the major drag on the country’s economy. Last month’s PMI hit lows not seen since 2012. And projections are for even worse this time around.
The worrying factor is that it’s the output and new orders that are continuing to contract. This indicates that German manufacturers are struggling to sell their products.
Expectations are for Manufacturing PMI to come in at 44.3, a decimal down from the 44.4 prior. This contrasts with the other PMI metrics, such as Services. We can expect this to improve to 56.2 from 55.7, helping the composite move up slightly to 52.4 from 52.2.
A further drop in Germany’s industrial outlook would be negative for the euro, naturally. But the market might be extra concerned if there is a drop in the services sector, which is keeping the economy afloat for the moment.
Ifo Business Climate
The next major data out of Germany that could provide some volatility is the Ifo Business Climate Survey. We can expect this to stay in contraction territory at 99.3, a marginal improvement from the 99.2 prior.
This indicator has been dragged down by the expectations component, which is finally expected to pick up a bit to 95.4 from 95.2 prior. However, that’s not enough to make a significant difference.
A large portion of this indicator is affected by the trade outlook. And it has taken a nosedive over the trade war. Since we’ve been getting bad news on that front as of the beginning of the month, there isn’t much hope for an improvement in the business outlook.
Look for the current situation to slip below 100, which might be interpreted as a significant negative sign by the markets. On the other hand, if the climate survey to were to return to growth, that would give some strength to the euro.
Traders are in a holding pattern around the euro as its largest component economy struggles to find growth in industry and exports. With the trade outlook remaining dim at least in the short term, it’s not surprising that the market would price in a negative read from these numbers.
A beat of expectations, therefore, could give the market a strong bump. Otherwise, continuing bad news from the German manufacturing sector would keep economic and inflationary expectations for the eurozone muted.
The US dollar has been a little weaker over the European session on Wednesday as a lack of key data drivers has turned attention elsewhere. Looking ahead today though, we have the release of the FOMC minutes. These could prove to be market moving if they offer any further clue as to whether the Fed is moving closer towards another rate hike as was suggested in the last meeting minutes. The index trades 97.89, not far off the 98.07 2019 high.
Euro Higher on Weak USD
EURUSD has traded a little better against USD so far today. Traders had been following Draghi’s remarks at a speech made in Frankfurt this morning. However, nothing market moving was noted and with no other EZ data on the sheet today, EURUSD quietly traded 1.1162 last.
GBP Down Heavily On New Brexit Plan
GBPUSD has been sold heavily again today following Theresa May’s unveiling of her new Brexit plan in parliament yesterday. The new plan will be put to a vote in just a few weeks. It offers MPs the chance to vote on whether to hold a second referendum on the terms of the deal. So far, the response has been widely negative and GBP is being hit hard on expectations that the PM will be defeated once again. GBPUSD trades 1.2666 last as price breaks below the 1.2670 support level.
Muted Risk Sentiment Midweek
Risk sentiment has been a little muted today with the SPX500 trading 2859.88, sitting just above the 2856.30 support. Today’s FOMC minutes could fuel a break below that level if the market senses any hawkishness from the Fed. On the other hand, a neutral tone should keep risk assets supported. Indeed, the UK100 is rising strongly today as GBP trades lower with the index now testing the 7368.3 level.
Safe Havens Rise
Safe havens have been a little higher today amid a broadly subdued risk environment. Both JPY and gold have been higher against USD so far. However, moves have been very shallow. XAUUSD is now once again sitting back under the 1280.58 level which has been a key pivot over 2019 trading so far. And price trades 1274.30 last. USDJPY is trading 110.41 last with price still sitting well above the 109.70 support level.
Crude Capped By Inventories Build
Crude prices have turned lower again today, trading their third consecutive losing day as of writing. Yesterday’s API inventory report showed another unexpected build in US crude stocks. Traders are now waiting on the release of the EIA report later today to confirm the build. If it does, it will press oil down further. Crude trades 62.40 now, turning back down towards the 61.89 level as price looks to be putting in a lower high on the daily chart, suggesting the potential for another leg lower.
Commodity Currencies Higher
Despite the weakness in oil prices this week, CAD has been able to hold onto gains against USD. USDCAD traded 1.3394 last, marking a sharp reversal back below the 1.3469 level broken last week. Looking ahead today, Retail Sales are the main domestic data for CAD. But the FOMC will likely overshadow it.
AUDUSD has managed to trade higher this morning following a sharp move lower yesterday which almost broke fresh lows. With fears around the ongoing US/China trade war growing, it is likely that the recovery will be short-lived. Focus remains on further downside in the near term unless the fundamental backdrop changes drastically. AUDUSD trades .6894 last, still well below the .6982 support level recently broken.
The incredible strength of the US Dollar over the past 12+ months has put downward pricing pressure on Gold and Silver. I believe this downward pricing pressure could be muting any upside price advanced in Gold and Silver by as much as 20% to 30% or more.
The US Dollar has turned into the global “safe-haven” for international investors and foreign governments. Over the past 6 to 12 months, or more, the US Dollar has been the only fiat currency to see any strength and upward trend. All the other major global currency levels have fallen – some dramatically lower.
The EUR, GBP, AUD, CAD, and CHF have all fallen sharply over the past 6 to 12 months as the strength of the US Dollar and US Economy continued to surprise many. We’ve been calling this a “capital shift” that started back in 2015~2016 – when the 2016 US Election cycle began and China began to implement capital controls. At the same time, foreign nations such as Brazil and Venezuela began to shift into an economic abyss while the UK dealt with BREXIT negotiations. All of these external factors created an environment where the US Dollar became a global safe-haven for global investors – all of which were seeking US equities and US Dollars to hedge weakening foreign currencies and weak foreign stock market performance.
I think that the US Dollar strength, in combination with the continued foreign Gold acquisitions has amounted to a resolved “reversion” in Gold prices that could reflect a 10% to 20% price anomaly. In other words, the strength of the US Dollar has muted the advancing price of Gold by our estimates of 2x to 2.5x the strength of the US Dollar. Over the past 12 months, the US Dollar rallied from 89.42 (April 2018) to 97.92 (May 2019: current price). This reflects a 9.60% increase in the value of the US Dollar.
If my research is correct, the price of Gold should have rallied by about 18% to 26% from the April 2018 levels IF the US Dollar had not appreciated in value as it has. Therefore, the true price of Gold should be somewhere near $1600 (18% above April 2018 levels) to $1700 (26% above April 2018 levels) if we attempted to eliminate the “reversion effect” of the US Dollar strength.
We come to this conclusion by statistically analyzing the US Dollar strength after April 2018 and how Gold reacted to this strength – by falling over 12.5% from near $1350 to a level near $1170. That range of time reflected an 8% price advance in the US Dollar. Thus, a ratio of 1.5 to 1 has clearly been established within that move. More recently, from August 2018 till now, the US Dollar has rallied 1.47% while the price of Gold has rallied 8.87%. The current price of Gold is -5.60% below the April 2018 price level.
If we were to assume that the rally in the US Dollar deflated the price appreciation of Gold by nearly equal ratios, then we take the April 2018 price of Gold ($1350) and add the related price variances of Gold over this span (essentially reverting the price of Gold to April 2018 US Dollar levels : $1350 * 1.27) and we end up with $1714.50. This reflects a greater than 30% price anomaly from the current price of Gold.
We need to ask ourselves one simple question, what would it take for Precious Metals and the global stock markets to revert back to these expected price levels? Would it be a move away from the US Dollar? Would it be some shift in foreign currency valuations? Would it be a combination of factors that drive greater fear into the markets and reflect a US Dollar valuation decline? In the second part of this article, I will explore some possibilities and explain why I believe we are just days or weeks away from finding out exactly what will cause this price anomaly to revert along with my proprietary gold price cycle forecast.
I just highlighted the strength of the US Dollar in comparison to other foreign currencies and suggested this US Dollar strength may have created a “price anomaly” setup in Precious Metals – specifically Gold. I believe a very unique setup is happening in the global markets right now and that the price of Gold is substantially undervalued compared to risks that are present throughout the global economies. I believe the strength of the US Dollar has muted the upside potential of Gold by at least 20% to 30% over the past 12+ months and I believe a shift is taking place where Gold is starting to break these pricing constraints.
If the analysis is correct, I believe traders only have about 3~6+ weeks before we’ll find out why and what will cause this price anomaly to revert back to what I believe is “price normalcy”. The strength of the US Dollar, as well as the continued global “capital shift” where foreign investors are piling into the US stock market and US Dollar related investments, have continued to put incredible pricing pressures on Precious Metals. We believe this “shift” may be about to revert back to some levels of normalcy in term of Precious Metals pricing.
I believe a major Pennant/Flag formation is setting up in Gold where this price anomaly event will be resolved. This type of price anomaly reset, or reversion will prompt a massive upside price advance in Gold and Silver that will attempt to restore proper pricing levels to the Precious Metals commodities. I believe we are just weeks away from the completion of this Pennant/Flag apex/breakout event and believe the upside price targets identified align with a series of key events that are likely to unfold over the Summer months of 2019. Take a few minutes to read the recent three-part research post regarding these events and how they relate to the global stock/commodity markets here.
Our predictive modeling systems have been warning that a price advance in Gold and Silver will take place between April/May of 2019 and Aug/Sept or 2019. We are calling this the “initial upside price leg” because we believe this upside price move will be just the beginning of a much larger move higher for Precious Metals. We’ve highlighted some of the biggest concerns we currently have related to the global stock market price appreciation levels and the concerns related to the US Presidential Election cycle in precious articles – Please read them here :
We believe it is imperative to alert all investors/traders of this event and to attempt to allow all investors/traders to plan for what may become one of the biggest global stock market swings in recent history as well as one of the biggest moves in Precious Metals in history.
My proprietary cycle analysis and trade signals are suggesting a mild price recovery in Gold will prompt moderate upside pricing pressure over the next 10~20+ days. This aligns perfectly with our Pennant/Flag formation, see the previous chart. It would be expected that Gold prices would form a moderate price support level near $1270 before moving back up to the upper Pennant price channel, near $1295. Then, price should set up the “Apex Breakout” move – which will likely be a “washout-low” price rotation (somewhere near or below $1270) with a very quick reversal to the upside – breaking $1330 and rallying much higher. This type of rotation is very common and often prompts traders to jump into short positions on the “washout-low” formation before getting clobbered on the reversal/rally. Be prepared.
Lastly, we want to alert everyone to a chart we’ve been following that could become a determining factor for the future of the global stock market levels, the US Dollar and Precious Metals. The one thing we don’t want to see is a massive decline in yield in the 2 Year Treasuries. This would indicate failed growth expectations throughout the globe and, in particular, reflect concerns that the US markets could contract/decline in-line with further global market devaluations.
We’ve already been trying to warn investors that the US Presidential Election cycle will likely create a stalling price pattern in the US stock market. We’ve been warning, for the past 18 months, that Gold is setting up a massive bottom/breakout formation. We’ve recently highlighted the global concerns (Europe, China, US, and others) that may combine to create something like a “perfect storm” for currencies and the global equities markets. If that translates into “yield weakness” in the US Treasuries, think about how that would translate into the Precious Metals “reversion” that we are suggesting is only a few weeks away?
Chart courtesy of www.crescat.net
We strongly urge investors to pay very close attention to our research and prepare for this event. Yes, the Capital Shift event is still taking place and as long as nothing disrupts this shift, capital will continue to flow into the US Dollar and US Equities. Our concern is that the charts are telling us we are very near to the end of this event cycle and we are alerting all of our followers so they can prepare for this move. It may start out mildly – it may not. We do know that our predictive modeling systems are suggesting that July/August 2019 are on our radar for a major price rotation/event.
First, we typically see stocks sell-off and as the old saying goes, “Sell in May and Go Away!” which is what has been happening.
So what does this mean? It means we should start to see money flow into the safe-haven assets like the Utility sector, bonds, and most importantly precious metals. I anticipated this and our XLU utilities ETF taken with members has already hit our first profit target, and our VIX ETF trade also hit out 15% profit target and we the balance of it is still up 25% as of yesterday.
Second, my birthday was this month, and I think its time I open the doors for a once a year opportunity for everyone to get a gift that could have some considerable value in the future.
For May I am going to give away and ship out silver rounds to anyone who buys a 1-year, or 2-year subscription to my Wealth Trading Newsletter. You can upgrade to this longer-term subscription or if you are new, join one of these two plans listed below, and you will receive:
1-Year Subscription Gets One 1oz Silver Round FREE
(Could be worth hundreds of dollars)
2-Year Subscription Gets TWO 1oz Silver Rounds FREE
(Could be worth a lot in the future)
I only have 25 silver rounds I’m giving away
so upgrade or join now before its too late!
There is a lack of rain in West Africa and especially in Côte d’Ivoire. Will the cocoa quotations continue increasing ?
Cote d’Ivoire farmers report a lack of moisture, which leads to the production of poor quality beans. This may reduce the harvest in the current intermediate season, which lasts from April to September. According to Cocobod, cocoa production in Ghana during the current crop season will be reduced to 850 thousand tons from 900 thousand tons a season earlier. In the mid-May, the International Cocoa Organization (ICCO) confirmed the forecast of world cocoa production in the season 2018/19 amounted 4.8 million tons. Of these, Côte d’Ivoire accounts for 2.2 million tons, or about 46%. If crop forecasts are revised downwards due to the development of drought in African countries, this may contribute to the growth of cocoa quotations.
On the daily timeframe Cocoa: D1 approached the upper boundary of the long-term neutral trend. Before opening a buy position, it must be pierced to the top. Various technical analysis indicators have generated upside signals. Further growth of quotations is possible in case of bad weather and a reduction in world yield.
The Parabolic indicator demonstrates signal to increase.
The Bolinger bands narrowed, indicating volatility decrease. Both lines of Bollinger have a slope up
The RSI indicator is above the 50 mark. It has formed a divergence to the rise.
The bullish momentum may develop if Cocoa exceeds the resistance line of the long-term neutral trend: 2450. This level can be used as an entry point. The initial stop loss may be placed below the last lower fractal, the Parabolic signal, the 200-day moving average line and the lower Bollinger line: 2222. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals to the next fractal minimum. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level (2222) without reaching the order (2450), we recommend to close the position: the market sustains internal changes that were not taken into account.
Recent US media reports claim China may depreciate its renminbi to cope with shrinking exports. Yet, economic realities are precisely the reverse. Worse, trade wars are about to hit American consumers.
Recently, the White House lifted tariffs to 25% from 10% on $200 billion of Chinese goods, while targeting another $300 billion worth of Chinese imports for potential punitive tariffs.
As was to be expected, the renminbi depreciated from 6.7 to more than 6.9 against the US dollar, mainly on renewed trade tensions.
China retaliated by imposing duties on $60 billion of US goods, starting June 1. China could have retaliated hard, but opted for a mild response that highlights the importance of talks.
“I love the position we’re in,” President Trump said recently. Yet, the movement of the renminbi may not be to the liking of the White House since it is likely to offset the tariff impact.
Trump tariffs’ impact on Chinese and Asian currencies
Until Trump’s tariff escalation, Chinese renminbi was around 6.80 against the US dollar. That, however, was predicated on the expectation that cooler heads would prevail in the White House and a broad-scale trade war was avoidable. When President Trump opted for tariff escalation, markets reacted quite expectedly. For now, the Chinese currency has only reversed its appreciation year-to-date.
As Trump prepares to raise and broaden US tariffs even more, Chinese renminbi could depreciate more. But that is the White House’s choice, not Beijing’s preference. Indeed, Trump’s tariffs have paced the renminbi fluctuations ever since the start of his trade wars (see Figure).
FigureHow Trump tariffs reverberate in renminbi movementsIn light of these facts, the claim that China is depreciating the renminbi is simply flawed. Depreciation is precisely what China seeks to avoid. When exports shrink, a light depreciation of the currency is of no help. And if the renminbi would depreciate significantly in a short period of time, it would foster worries about capital flight.
That’s why Chinese government has done precisely the reverse: To avoid steeper depreciation and capital outflows, the People’s Bank of China (PBOC) recently set a stronger-than-expected daily fixing of the exchange rate. The central bank is likely to try to keep the renminbi below 7 per dollar.
The depreciation of the renminbi is in line with that of other emerging-Asia currencies that have taken hits, including Indonesian rupiah, Singapore dollar, Malaysian ringgit, the Indian rupee and the exhausted South Korean won. By the same token, Trump’s tariff escalation is likely to cause a negative spillover effect among the same currencies.
Ironically, those countries that may suffer most of the pain – Taiwan, South Korea and Vietnam – are closest US allies in Asia, but also targets for next tariff wars. In the future, Trump seems intent to target Europe, Japan, South Korea and emerging Southeast Asia.
Tariff wars’ collateral damage in the US
A year ago, Larry Kudlow, Trump’s director of National Economic Council, was still gung-ho about US supremacy in the tariff war. Recently, he admitted that American consumers will pay for the Trump trade wars. In the US, his reversal is seen as betrayal of American public, and rightly so. As Washington Post put it, “Trump’s own top economic adviser gives lie to his trade war rhetoric.”
Here are the inconvenient truths: A broad-scale trade war could penalize 0.5% to 0.8% off real US GDP growth, while earnings growth could be shaved off by 3% or more effectively halving the figure. Auto sales are a barometer of what’s to come. In 2019, Chinese auto sales could decline by 3%, but in the US by almost 4%. In 2020, US sales could remain in the red, but Chinese sales could increase – according to US data.
Unsurprisingly, several US lawmakers are finally slamming Trump’s tariff increase on China. In just a year or two, the Trump administration has committed some of the worst trade-policy mistakes in the postwar US history. The resulting economic pain will spread in America as products shipped from China arrive in about three weeks.
The fantasy about a renminbi Plaza Hotel Accord
For a decade or two, Washington has periodically used Chinese renminbi as a scapegoat to distract public spotlight away from rising economic challenges in the US. Yet, the renminbi has been largely in line with fundamentals since the mid-2010s, as the International Monetary Fund (IMF) has affirmed.
However, Trump has a more intimate interest in currency manipulation. Before his firm bought the Plaza Hotel in New York City, he monitored closely the talks that led to the 1985 Plaza Accord. The controversial pact led the US, France, West Germany, the UK and Japan to depreciate US dollar relative to the Japanese yen and Deutsche mark by intervening in the currency markets.
It was that exchange-rate manipulation that played a key role in Japan’s subsequent containment, asset bubbles, deflation, and secular stagnation. And it is the same dream that seems to fuel the Trump trade hawks’ fantasies about China’s containment and stagnation.
Yet, China is not Japan, dreams are just dreams, and the White House is in for an awakening.
About the Author:
Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at India, China and America Institute (US), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/
The original version was released by China Daily on May 21, 2019.
Today was a sad day for the British Pound which depreciated against every single G10 currency.
The toxic mixture of political drama in Westminster and rising uncertainty over Brexit have created a recipe for disaster and chaos for the British Pound. With appetite for the currency clearly diminishing by the day as fears mount over the UK crashing out of the EU without any deal in place, Sterling weakness is poised to remain a dominant theme. Taking a look at the technical picture, the GBPUSD is unquestionably bearish on the daily charts. The shooting star candlestick created on Tuesday signals further downside with the next key level of interest at 1.2620. A solid breakdown below 1.2620 is seen opening a clean path towards 1.2500 as discussed earlier in the week.
Euro finds comfort below 1.1200.
The Euro remains mellow and content below 1.1200 as political uncertainty compound to the Euro’s outlook ahead of the European Parliament elections. With Italy reviving tensions with the European Union over its budget plans and Brexit drama adding to the uncertainty, this week’s elections could rock the Euro violently.
Taking a look at the technical standpoint, the EURUSD remains bearish on the weekly charts as there have been consistently lower lows and lower highs. Sustained weakness below 1.1200 is likely to open a path towards 1.1100 and 1.1000, respectively.
Is Gold losing its shine?
This is slowly shaping up to be another depressing week for Gold prices as the precious metal struggles to break back above $1280.
Ongoing US-China trade tensions have sent investors rushing towards the
Dollar which has offered nothing but pain and punishment to Gold. Should the Dollar continue appreciating on risk aversion, the precious metal is likely to test $1268.50 in the near term. While bulls are losing the current battle, they still have the potential to win this war.
Much attention will be directed towards the FOMC minutes this evening which should provide fresh insight into the Federal Reserve’s monetary policy path. Gold could still rebound higher if the minutes sound dovish and reinforce market expectations over a potential US rate cut this year.
Looking at the technical picture, bears remain in control below $1280 with the next key level of interest at $1268.50.
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EURUSD has expanded its consolidation range both upwards and downwards; right now, it is falling to reach 1.1142. Possibly, today the pair may reach it and then grow towards 1.1166, thus forming another consolidation range around 1.1166. If later the price breaks this range to the upside, the instrument may form one more ascending structure to break 1.1188 and then continue the correction towards 1.1212; if to the downside – resume trading inside the downtrend with the short-term target at 1.1070.
GBPUSD, “Great Britain Pound vs US Dollar”
GBPUSD has returned to 1.2800; right now, it is trading to rebound from it to the downside. Considering that the pair broke 1.2720 downwards again, it may fall to reach 1.2686. Later, the market may break this level as well and continue falling with the short-term target at 1.2639. However, if the price breaks 1.2800 to the upside, the instrument may continue the correction to reach 1.2944.
USDCHF, “US Dollar vs Swiss Franc”
USDCHF is still consolidating around 1.0104. Today, the pair may start a new growth towards 1.0118 and then form a new descending structure with the target at 1.0080.
USDJPY, “US Dollar vs Japanese Yen”
USDJPY is moving downwards; it has formed the consolidation range below 110.60. Possibly, the pair may reach 109.88 and then form one more ascending structure with the target at 110.77.
AUDUSD, “Australian Dollar vs US Dollar”
AUDUSD is forming another descending wave towards 0.6860. Possibly, the pair may reach it and then start a new growth towards 0.6896. After that, the instrument may resume trading inside the downtrend with the short-term target at 0.6814.
USDRUB, “US Dollar vs Russian Ruble”
USDRUB is moving downwards. Today, the pair may break 64.39 and then continue falling with the target at 64.14. After that, the instrument may be corrected towards 64.80 and then continue trading inside the downtrend with the short-term target at 63.90.
XAUUSD, “Gold vs US Dollar”
Gold is consolidating around 1273.95. If later the price breaks this range to the upside, the instrument may form one more ascending structure towards 1278.50; if to the downside – resume trading inside the downtrend with the short-term target at 1260.00.
Brent is still consolidating around 72.10 without any particular direction. If the price breaks this range to the upside, the instrument may resume trading inside the uptrend with the target at 73.93; if to the downside – continue the correction towards 70.60.
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.