Fair value of a product is that which can be established between two or more parties at any given time. In the world of “Quantative Easing” (or some form of it) by the biggest economies (US, Japan, UK, EU) combined with the abnormally low cost producing China, fair value is hard to establish. With all this “free” cash, rather than hard worked for produced wealth, what is the true price of coffee, sugar, gold, homes, phones or currency? I say free, because in a traditional economic sense one cannot just print cash, you get locked up in most countries for attempting it yourself. The price of all this cash is debt. Debt for the government. Therefore debt taxpayers must pay off. Therefore debt for its citizens and their children, for you and me.
The last five years have been the toughest trading markets I have seen in my 19 years of being in the industry. Yes US equities have been pretty much one-way traffic but the rest of the investment world from bonds to currencies, emerging markets to commodities, stocks to housing have been extremely volatile. Not only volatile but also hard to calculate or predict fair value. Correlations have also suffered in this decade of the “tweenies”, constantly breaking from tradition to slip back into it and then out again. One thing has stayed true, and that is the money managers desire for yield. Brokers get paid by being the middle man but investors, whether it be you with your $10K trading account or hedge funds with $10B, want a return for the money. They want their money to work for them and come back larger when sent out. This hunt for yield has always been here, ever since the barter system grew up and become an exchange driven system.
The chase for yield can be seen in the price movements of various markets. The issue these last five years, for me at least, is that this chase has been up hill and down dale. One week it’s heading in a direction only to turn around. Take gold’s moves just this week as an example. I believe the reason for this lack of commitment in establishing fair value is the mass of “free” cash floating in the economic system. The free cash has not been earned in the traditional sense and therefore has little value itself. Yet it’s all this free cash (that doesn’t go to those who need it, it’s a trickle down system and rare if ever is the day that the struggling families get it) that is looking for a yield that is driving values, inflating a market then moving on.
Today we have the two busiest printers of the tweenies, Kuroda of the BOJ and Bernanke of the US Fed, and here endeth my rant.
DATA HIGHLIGHTS AHEAD (times are in AEDST) – Sometime the BOJ will have a conference. 630pm UK Retail sales and BOE minutes. 1030pm CAD retail sales. 12am US Home sales. BERNANKE TESTIFIES. 4am FOMC minutes.
AUDUSD –Is a HH/HL but also a doji (indecision) bar that failed to get above 9850. Seems to have found the floor though, temporarily. I would see it to mid 99’s and look for fresh selling there. Resistance: 9880/9930/10028 Support: 9707/9620/9400
EURUSD – Heading towards the 50ema as expected, like the Aussie, will look for fresh sellers at that meeting of price and ema. Resistance: 13000/13040/13112 Support: 12880/12750/12655/12500
GBPUSD – Got boxed around the ears for bringing in poor CPI data. LH/LLs spell bear trend but I see no entry on day chart yet. Resistance: 15200/15410/15606 Support: 15080/15000/14800
NZDUSD –Fascinates me how price stops on horizontals or fibs so often. My level of 8211 got tagged with the kiwi having a high of 8212.6, to fall back into a doji bar. Still the current sentiment is slightly bullish. Resistance: 8211/8360/8475 Support: 8158/8050/7913/7815
USDCAD –After the inside bar we get a HH/HL and a high testing bar, testing upper resistance and a trend line from early 2012 too. Failed them both. One would normally expect a pullback to the ema under these circumstances. Resistance: 10335/10446/10516 Support: 10216/10100/10000/9958/9868
USDJPY – Is on tenterhooks and will continue to be until Kuroda lets fly again. 105.50 is definitely in reach today if he gets super aggressive on stimulus. He has the green light from the G7 and the yen has been stubborn since breaking 100. Resistance: 102.53/104.10/105.60 Support: 101.70/100.00/98.52/9670
GOLD –Want some volatility? Have some of this! Good luck working out which way this is going. I’m out of it unless outside the range 1320-1480, too hard for me. Resistance: 1425/1440/1477/1525 Support: 1320/1248/1100