History is repeating – without fundamentals to drive, speculation pumped the market up, speculation let the market down. We saw that from the SHHK action. This time the Hong Kong market is again driven by talk of SZ-HK. This is looking the same like last year. There is no explanation why the fundamentals are different/better this time. So again speculation will drive the market up and in time, speculation will let the market down all over again.
Week 34 2016 price action can be described only as moribund followed by Jackson Hole come alive. Last 12 hours trading was also shoot-one-way, U-turn-the-other with initial bearish USD followed by bullish USD. Torn, indecisive action or just herding traders into a big trap?
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AUDJPY used to be a very good indicator of ‘intermarket correlation’. It clearly tracked Asian stock market indices such as Hang Seng Index, Singapore Index Futures (SiMSCI) and MSCI Emerging Markets Index (EEM). The positive correlation could be due to 2 dynamics:
AUD tends to do well when Asian economies like China are doing well (think of Australian exports of iron ore, other commodities)
JPY tended to strengthen due to repatriation when its stock market i.e. Nikkei 225 is not doing well (which also tracks Asian indices).
At the moment AUDJPY has diverged from Hang Seng Index and EEM; a convergence of the three requires 1) strengthening AUDJPY or 2) deflating HSI and EEM.
DXY appears to be weakening and in danger of breaking out of channel. USDCAD is falling out of 4-month consolidation so WTI is concurrently strengthening.