Since the beginning of year 2006, the Euro has gathered a recovery of 6.92% versus Dollar. Not a surprise that the Euro keeps on rising slightly versus Dollar in view of the clear breaking of the 1.24 level –current price support-. The market might be discounting a very likely rise in interest rates within the Euro and Japan zones, whereas in the US the interest rates are considered to be rather high taking into account the maintained inflation of the last months. Therefore, it seems like, in relative terms, the rates’ differential should diminish and this could carry out a new appreciation of Euro versus Dollar.
Another significant issue is the expected retracement of the Chinese currency exchange rate versus Dollar. According to the current market vision, the Yuan is under valuated.
Bonds (Euro Bonds 7-10). Bearish Trend
As said for Euro/Dollar, there is a clear expected rise in interest rates. The long term bonds have already experienced a partial fall. Given the current technical situation of the market, we keep an eye on a potential new retracement. We are now facing a bearish trend.
Stock Exchanges
Index
Main Trend Strength Trend
S&P 500
Bearish Trend
DJ Stoxx Index
Bearish Trend
Nikkei 225
Bearish Trend
Stock Exchanges are following the path imposed by Euro/Dollar and Bonds. As long as the scenario shows rising interest rates and a weak Dollar, the Stock Exchanges should not be strong. As per this year, Japan has been the most penalised market (-10%), whereas Europe (+2%) has been enduring the trend, partially due to the Euros’ strength. The retracement from last highs in DJ Stoxx Index reaches an 8.18%. This strong retracement is endorsing a technical price rebound in the short term.
Commmodities (Comm Res B. NDX - CRB). Tendencia bajista
Despite the current bearish trend, having a closer look at last years’ prices, the trend for a longer term -3 years- is clearly bullish. This is the main risk that the markets are facing in the current days and the reason behind the recent interest rates’ increase.
The table below shows the performance of the raw materials’ index for the last 6 years.
Summary
Currently the Stock Exchanges are pointing downwards, but with a stroke on a mid term support. Given that we have endured the decline and in view of the high odds of a short term rebound, it may not be the best moment to exit positions. TechRules’ models are out of the market, awaiting an improvement in the situation.
