Thursday 15 September 2011

Central Banks coordination - will it help?

The following are my Inter Market analysis for the Central Bank coordination to provide liquidity to European banks. It measures the ‘up’ move last night.

·         The US Dollar index fell. Risk on. Check!
·         Gold fell. Risk on. Check!
·         Crude oil closed near flat. Risk on is neutral. Check?
·         Euro rose. Risk on. Check!
·         Aussie dollar rose. Check!
·         VIX fell. Check!

As you probably know, Europe and US markets cheered with the Central banks coordination of joint effort to provide liquidity to European banks. The mood spilled over to Asian markets this morning.

However, by noon, Singapore time

·         The US Dollar index inched up. Risk off? Caution!
·         Gold fell. Risk on. Check!
·         Crude oil inch up Risk on. Check!
·         Euro fell. Risk off?  Caution!
·         Aussie dollar inched up. Check!
·         VIX fell. Risk on. Check!
Is this the beginning of a bull market? Is Europe experiencing liquidity or sovereign debt or both problems? Does this coordination resolve Europe’s debt problem? What’s the current status for Greece?

Global investors’ is divided into 3 groups of cattle/herds mentality – European, US and the Asians. They might have the same opinion but not necessarily react in the same manner. Though they may share the same optimism or otherwise, you have to check the weather/climate when winds change

Update: Shortly after 3pm Singapore time, India Central Bank raises rate for the twelve time in 18 months by 25 basis point to 8.25% which is in line with expectation addressing inflationary issues. I would trade with caution as the direction of winds has changed!

Tip for commodities: Gold. Technically, the daily chart shows Gold to be bearish. Immediate resistance is US$ 1,825-1,830. If the next FOMC meeting (scheduled Sep 20-21) is favorable or there is hint of QE3, Gold will rally and break US$ 2,000. Otherwise Gold will target US$ 1,515-1,530. Next support from this level is US$ 1,630-1,635.


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