by James Hyerczyk
Stocks and commodities are set to surge today after China loosened its reins on the Yuan over the week-end. Although the timing of the move by China to allow its currency to appreciate against the Dollar came as a surprise, the action followed months of serious negotiations between the U.S. Treasury and the Chinese government.
Global demand for goods and services is expected to increase because the action by China makes imported goods less expensive for Chinese consumers. A strong Yuan compared to the Dollar should be most beneficial for U.S. manufacturers and exporters. Investors are selling the Dollar this morning and aggressively buying stocks and commodities. This theme is expected to set a strong tone for risky assets this morning while putting pressure on the Greenback.
The September E-mini S&P 500 surged overnight through a major 50% level at 1122.00. After building a strong support base since late May and starting an initial rally following the easing of tensions in Europe, the S&P 500 is expected to soar over the near-term as investors buy equities in anticipation of improved future earnings in anticipation of greater demand from China. Look for new higher support to establish at 1122.00 for a drive to the .618 retracement level at 1143.00.
The September E-mini NASDAQ looks even stronger this morning after taking out its Fibonacci retracement level at 1935.00. Look for a support base to build between 1898.50 and 1935.00 over the near-term. The daily chart indicates there is room to the upside with the mid-May top at 1980.00 the near-term objective.
Look for the September E-mini Dow to test a .618 level at 10556 early in the session. The intra-day action will be determined by how investors react at this level. There may be some light profit-taking following the first test of this price level, but overall demand should underpin the market, preventing a sharp sell-off. In the worst case scenario, investors should watch for a test of the 50% level at 10375. A test of this level is likely to attract fresh buying.
In summary, the fundamentals are there to trigger a huge breakout rally today. The question is whether U.S. investors will buy strength on the opening this morning or wait for an intraday set-back.
September Treasury Bonds gapped lower overnight as demand dropped for so-called safer assets and increased for equities and commodities. Traders should look for selling pressure throughout the day with an acceleration to the downside likely if the last main bottom at 122'15 is violated. The daily chart indicates there is plenty of room to the downside with 119'22 a potential downside target over the near-term.
The weaker Dollar is triggering another rally in August Gold. Last night gold made another new term high. Minor support is likely to be established at the two former tops at $1254.50 and $1251.40. Look for weakness to develop only if this support zone is violated. Volatility has been light, but with prices moving higher, gold may top out if investors feel their chances for a good return on investment is low. If this scenario develops, then look for money to shift out of gold and into equities.
September Crude Oil is trading sharply higher this morning. Overnight the market tested a major 50% level at 80.88. Regaining this price level and establishing support here should fuel another surge to 83.54. The stronger Yuan should help to increase demand for global oil prices.
