STILL BEARISH RISK CORRELATED ASSETS – Despite the ability for risk correlated assets to remain relatively well propped in recent sessions, I still see no reason for these markets to continue to hold up. In fact, I forecast significant underperformance going forward and would be looking for pullbacks in the commodity bloc and emerging market currencies, along with global equities. Technically, there is also evidence of some short-term weakness in the metals, with both gold and silver on the verge of rolling over.
THE PERFECT STORM – Some of the more recent developments supporting my outlook have been warnings from PBOC Zhou of the ongoing financial crisis impact on the Chinese economy, the IMF downgrade of global growth forecasts, downbeat RBA Lowe comments/softer Aussie business conditions, Spanish bailout fears, and EU Juncker’s deadline for Greece to implement agreed reforms. All of these stories are risk negative on their own merits, and the fact that we are getting a confluence of widespread risk off headlines, should put even more pressure on risk correlated assets.
KEY LEVELS TO WATCH – As far as the major currencies are concerned, look for EUR/USD to remain well offered above 1.3000, with a break and daily close back under 1.2935 to accelerate declines. Look for GBP/USD to remain under pressure with risks now for deeper setbacks into the 1.5700′s over the coming sessions. Any rallies above 1.6100 should be seen as compelling short opportunities. Look for renewed AUD/USD weakness ahead of 1.0300, in favor of deeper setbacks back below parity. Look for USD/CAD to accelerate on the next push beyond 0.9800, and look for USD/JPY to possibly breakout to the upside if the market can clear 78.90.