|With the OPEC cuts in oil production allegedly by as much as 2 million barrels a day, and the intentional attack on the Nord Stream gas links, Germany is going to be captive to United States provided liquid natural gas this winter. There may be a big drive to reengage and to recommission their nuclear reactors, as winter approaches and demand for energy is high. A “coincidental” leak in a key Malaysian gas line, may have a similar effect and cause a force majeure against contract of provision affecting the Asian market generally, particularly Japan. Malaysia will be down on its production and its ability to provide to the Asian market.This is likely to result in a very strong bid in the energy markets, particularly gas, which is going to continue to hold inflation high. Europeans spending Euros and buying Rubles to buy natural gas through Nord Stream will in fact now be supplementing and supporting the petrodollar by purchasing from America and its US Dollar based pricing for energy. Asian markets will also be looking for the non-Russian supplier of liquid natural gas, and this is likely also to see further petrodollar support.Generally for oil, our bias is a drift upwards the correction is more that of a continuation structure, than a reversal, although an extreme geopolitical or natural event could lead to other possible scenarios:A military event, could see both oil and the Dollar go up.|
A highly deflationary banking failure, or debt-based event could see the dollar up and oil affected negatively to the downside, in a demand destruction & disinflation.Other: Pandemics, Cyberattack, with effects as aboveFor now, until any big events occur, we see the likelihood that oil is going to maintain its current levels and even move somewhat upwards during the lulls in dollar strength.
BRENT OIL 3D Falling wedge for continuation
|The dollar index has rested from its impulsive move higher recently, following the making of its upside HVF target. After target it then pivoted into a blowoff spike, that has since pulled back. The long run in our view is the probability of ongoing stubborn inflation that is energy driven, particularly for Europe and the ‘weak slave partners’ to the United States axis, that include Germany (and with it Europe), South Korea and Japan.These nations are all energy importers, and are going to be greatly reliant on inflows in an area where the pricing is going to be high and also supportive of Dollar strength. Simultaneous to this, we observe that despite the Pound having a rally following its mini-budget collapse, it has in fact been losing value since the 1.4200 High head and shoulders pattern, formed in May 2022.|
GBPUSD 3D Pound falls against the Dollar
|DXY 4H Ascending wedge revisit|
|On the debt front, the Bank of England’s 50 basis points increase, when America was doing 75 basis points increases, despite the UK having a higher CPI than the US CPI, sees Kwasi Kwarteng as possibly been scapegoated. He was at most the final straw that broke the camel’s back.The Bank of England has been positioned as the hero cleaning up government’s mess. Far from it! They clearly created a higher relative interest rate attractiveness for the Dollar, which now sits at a 3.25% Fed rate versus Britain’s 2.25%. With the principal of money flowing to where it is treated best, always being the driving principle for international money flows.This will continue to see flows out of the pound, after a technical rally of GBPUSD, largely towards the Dollar.Britain will also be affected by the high natural gas energy prices that are prevalent for Europe and the Western friendly Asian nations as already mentioned. The UK debt markets on the three year and the ten year, are both above 4%, and have had a much smaller pullback from their parabolic move than the pound, and the debt markets are the key to the future crisis!Rather than watching the currency, watch the direction and the degree of pullback and reversion that is occurring in the bond markets both British and European. On this point France has now joined Italy in receiving EU governmental support and of course the UK which had £65 billion set aside for ‘Bond Liquidity’ provision. As a point of perspective, the entire annual defence budget is £35 billion, so the bond market support budget of which they claim to have “only” used £4 billion so far, is over 75% bigger than the annual UK defence budget.The day is still young, and there will be plenty of scope for further required liquidity provision, particularly in the highly illiquid bond markets. |
Despite them being one of the biggest markets of the world it has become quite clear, that there has been an absence of bid, by both pension funds, private investors and family officers, for debt in an environment where the yield is substantially lower than the ‘official’ inflation rate. Particularly outside of the United States in other words, non-Dollar based western friendly nations.There is both a currency loss, and a net real yield that is negative to the CPI rate, making this asset class deeply unattractive.We continue to expect rates to climb in spite of recessionary/depressionary economic conditions due to the fact that such an asset class is deeply unattractive and will devalue, along with its issuing currency. The central banks are going to continue to have to intervene to provide liquidity, as sellers emerge for various government debt. In Japan, where yield curve control is active ongoing policy, 62% of the debt markets are already held by the Japanese government!
UK 10Y presently above US 10Y 3D
|Central banks are forced to become the buyer of last resort, of toxic debt that is offering negative real yields after local inflation is considered on the official numbers, then there is their depreciating currency to take into account.This makes for a very attractive long-term Dollar bias and gold & silver bias. The key pivoting moment will be, when gold and silver go up simultaneously on an already strengthening Dollar. Recent increases in the gold and silver price were associated with a dollar rest, till now. We await that key moment, but we warn against waiting for that moment to invest. As premiums, taxes, delivery costs and cross-border movements get ever tighter in terms of rules and regulations for precious metals investment. Further taxation was added in Germany for the purchase of silver as an industrial metal.We also saw the energy market prices go up, rallies in the stock market, and minor rallies even occurring in crypto. |
Given this backdrop, we go into a non-farm payroll data day after the Dollar has corrected a bit already. Our suspicion is the Dollar pause period, may be relatively short. The EURUSD rallied to parity, from the lower 97s, only to be rejected. We feel the Dollar generally will have only a minor pullback before continuing to work its way higher. We do not think that this period will be overly long given the weakness of the Eurozone banks such as Credit Suisse, Deutsche Bank, UBS, which has been recently highlighted or the weakness of the Asian zone, which actually surpasses the eurozone in weakness, although less covered by financial media.We expect further loss of value in the USDJPY to resume and that of the Korean Won making these Dollar-based longs against the Yen and Korean Won our favourite trades even before we look at shorts on the Euro and the Pound again.
EURO/USD 4H Rally to parity then rejected
|Join us for the nonfarm payrolls number, released on our live trading day to see what the number brings. and what trade opportunities will be revealed to us in terms of FX, bond markets, equities in our first session.In our first session on traditional markets we’ll reveal a tradeable equity, that we feel from its current level will lose a further 66%+ in market cap decimation, on balance of probabilities.In our second session we evaluate crypto markets where we remain in a likely downside continuation structure pattern, despite current minor rallies within the trading range, being plausible during this period of build-up for the next major leg to the downside, in our view.We’ll reveal a top 15 crypto that we assess will lose a further 90%, that’s right 90% of its market cap.|
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