Global Profit Taking Sees Shorts Squeezed; Gold Remains Firm
Thu, Aug 26, 3:11 PM ET, by ForexTraders.com
It looks like traders want to take a break from the selling at the moment taking advantage of the fact that today is light on data. The U.S. stock market rallied late in session yesterday, which some commentators have been interpreting as a vote that the bearish news are being accurately reflected in prices by now. We don't share to this point of view, but given that many currencies, stock indices, and gold are in overbought/oversold territory, a brief shakeup of shorts is certainly possible. On the other hand, we are convinced that the next few months will be dominated by the risk downtrend, and see any rally as a selling opportunity. Bond prices were lower from Japan, to the U.S., and stocks, and the Euro did well too, but yen was sold. Later in the day, initial jobless claims were released showing a 30.000 decline from last week, which also boosted moods, but not by much. Ichiro Ozawa, the DPJ backroom backstabber, announces his intention to challenge Japan's PM Naoto Kan, according to the Kyodo news agencyIchiro Ozawa was forced to yield the party leadership, and the future prime ministerial seat, to Yukio Hatoyama due to a corruption scandal before the election a few years ago. But it now looks like he has rinsed and lathered himself to a squeaky clean revival and is ready to cause trouble once again. Mr. Ozawa is the last thing that Japan needs at the moment. Regardless of his chances of a win, another challenge against the incumbent will ensure that the current indecisive, slothful, and aimless government of Japan will find it even harder to adopt a steady posture. The PM met with heads of the three most influential business lobbies in Japan to discuss the yen and Japan's performance today, while Yoshihiko Noda, the FM, was quoted yesterday as emphasizing the necessity of taking appropriate steps if the yen rises too much or too fast, without qualifying his remarks on what the appropriate steps would be. Meanwhile, Japanese news sources report that the government's new stimulus plan will be ready by the end of next month. They do seem to understand the importance of at least appearing to be doing something, but it doesn't look like they have the guts to step from talk to action for now. If intervention doesn't work, what should the Japanese do? We believe that all that they can do is to sit back and relax. Yen's readjustment is not just a matter of currency supply and demand, but a symptom of a global phenomenon of current account rebalancing that is causing industries and economic models to break down and reform. We strongly believe that within ten years much of the manufacturing glut in Asia will have been erased, while the U.S., and other import-oriented economies create more lower paying jobs in same sector. In other words, we will see a migration of industries, as many cheap manufacturing jobs go to the U.S., and similar places, while services and finance industries jobs reallocate to the East, to better reflect the capital accumulation of these nations. This process will be neither smooth nor easy, but it is impossible to stop it now, and the Japanese should therefore focus on managing it effectively, instead of trying to fight the currents that dominate our times. N. Korea's Kim Jongil visits China, seems to be in bad healthKim Jong Il, who is known to have suffered a severe stroke, and is believed to be in a very bad shape healthwise, is in China, arguably seeking aid for his nation's bankrupt economy, even as speculation about the successor goes on. Now that the Chinese and the Americans have their own domestic economic problems to deal with, it will be even harder for the Communist nation to acquire the aid that it needs to survive, which creates all kinds of question marks with respect to the stability of the Korean peninsula. One would assume that the stalemate will continue, since the Chinese in particular will do everything to prevent a flare-up right beside their borders, justifying stronger American intervention and military presence. But as economic conditions worsen, it makes sense to keep an eye on the flashpoints of the world in the Middle East, Taiwan, and in the Korean peninsula. German GFK consumer sentiment indicator reaches 4.1, beating expectationsYet another positive piece of data from Germany, showing that the consumer is more upbeat about his condition in spite of the ongoing difficulties of the Eurozone. The string of better news from Germany continue, but the top of this phase of growth cannot be far away if confidence in the global recovery goes on eroding. So today is a data-light day, and markets have taken the occasion to stage a half-hearted rally. Let's see where it goes, but our overwhelming bias is towards selling everything (stocks, most commodities, AUD, EUR, etc) until the end of November, or until we can see what the authorities will do.
SDI Glossary: "Bond" Definition
SDI Glossary: "price" Definition
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