Crude oil's from 82.97 is still in progress and reaches as low as 71.32 so far. Intraday bias remains on the downside and further decline should be seen. As noted before, decisive break of 71.09 support will confirm our bearish view that whole rebound from 64.23 is finished at 82.97 already and target another low below 64.23. On the upside, above 74.48 minor resistance will turn intraday bias neutral and bring consolidations before staging another fall.
In the bigger picture, choppy rebound from 64.23 is treated as a correction to fall from 87.15 only and has possibly finished at 82.97 already. Break of 71.09 will confirm this case and also indicate that whole fall from 87.15 is resuming for 60 psychological level, (50% retracement of 33.2 to 87.15 at 60.18, 100% projection of 87.15 to 64.23 from 82.97 at 60.05). Decisive break there will indicate that fall from 87.15 is developing into a powerful impulsive wave and would target 33.2 low. On the upside, even in case of another rise, focus will remain on reversal signal as crude oil enters into resistance zone of 82.97/87.15.
The USD sell-off initiated in June kicked into overdrive shortly after our July report as the market quickly sold the greenback off to its lowest level since January. The main driver behind the weak USD argument was the strong and steady fall in US interest rates relative to the rest of the world as US economic data continued to underperform and brought back the fear that the Fed would soon stand ready to not only halt its exit strategies, but possibly even launch a new round of "QE2" easing. The arguments in favour of USD weakness this time around echo the kind of argument we saw from late 2007 and until the summer of 2008 - namely that the US weakness could be a sign that the US is "decoupling" and might remain abnormally weak without significantly dragging down the rest of the world's economy. At the same time, its external current account needs and a central bank bent on destroying the country's overwhelming debt by destroying the currency are the clear and present arguments for USD weakness.
The decoupling arguments are somewhat less forceful this time around from an economic fundamental perspective, since weakness in the Chinese economy appears to increasingly be back on the table (though the consensus is that the Chinese government can do more to kick-start its economy than the politically handcuffed and fiscally tapped out US government), Japanese growth for Q2 was actually negative in nominal terms and, as we approach the publication date, we're seeing a bit more nervousness about the EuroZone once again. As far as financial markets go, there are only fitful signs of nervousness that haven't yet "blossomed" into anything approaching panic, though an Ugly Wednesday on August 11 may or may not have been a warning sign. Remember that it was financial market contagion that set off the '08-09 crisis in the global economy - this time around, if we are to get an interlocking crisis, it will more likely come from a general organic growth problem, barring exogenous shocks to confidence from sovereign debt markets - which are endlessly discussed. The sovereign debt issue seems to be the hydrogen bomb of world economies. Much discussed and always there, but no danger until/unless someone sets the thing off - and then it is maximum destruction...
By the time of the report, the USD has launched a comeback attempt after the most recent Fed meeting failed to see the Fed doing more than taking steps to prevent its balance sheet from shrink. The lack of new hints at true QE2 ambitions - by this we do not mean an expansion of the kinds of liquidity enhancing measures we have seen thus far from the Fed - but truly "innovative" new tools aimed at circumventing the banking system and somehow forcing the end consumer to spend more (one crazy idea involves free money vouchers handed out to end users that expire if not used to force more spending and less saving). But with less than 90 days to the November 2 mid-term election (in which all House members are up for election and a third of the Senate), the Fed faces very strong political head-winds from the powerful new Tea Party movement and it may want to keep a low profile until after the election. We wonder in fact, if a serious economic downturn returns to the US as it seems ready to, whether the Fed will increasingly find itself under heavier attack - has its star peaked?
For now, the USD's fate seems bound to that for risk appetite and the degree to which the rest of the world can play "catch-up" to the downside in economic performance with the US economy, in a possible. It is our assumption that the markets are only pricing in a weakish/stagnating US economy. If we move deeper into a more globalized weakness in the developed economies, the greenback could stage one more strong comeback over the coming year before stumbling further down the road as the Fed and the tragedy of the .
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