High	Low			High	Low
EUR/USD	1.1299	1.1208		USD/ZAR	13.3085	13.2312
GBP/USD	1.5409	1.5340		GBP/ZAR	20.47	20.33
EUR/GBP	0.7339	0.7301		USD/RUB	66.71	62.38
USD/JPY	121.28	120.32		USD/ILS	3.9521	3.8970
GBP/CHF	1.4855	1.4763		S&P 500	1,972	1,934
GBP/AUD	2.1680	2.1513		Oil (Brent)	54.76	52.58

Technical analysts place great store in specific time dates and periods, largely because traders are heavily influenced by these dates as well. If your investors are only able to view your performance on a monthly basis then like it or not the end of the month will carry a certain significance for you. After the fun and games of the last few weeks it’s a good idea to take a step back and look at monthly charts, particularly bar charts and candlesticks to assess the technical damage, if any. In my view the watch-list which we maintain reveals the following…

Oil (Brent)	bullish		GBP/USD	indeterminate
EUR/GBP	bullish		USD/JPY	indeterminate
EUR/USD	neutral/ bearish		GBP/CHF	indeterminate
GBP/ZAR	neutral/ bearish		GBP/AUD	indeterminate
USD/RUB	neutral/ bearish		USD/ZAR	indeterminate
USD/ILS	neutral/ bullish		S&P 500	indeterminate

It’s not ideal, and certainly not as clear as one could hope for, and of course these observations are just based on the monthly candle sticks, but it does look like the most heavily punished emerging market and commodity assets could be due for recoveries into the end of the year, and it’s possible we see some pound sterling underperformance, certainly against the euro, possibly even against the basket. I would place a higher level of conviction in the cleaner charts for oil and EUR/GBP.

 

As bullish as the monthly chart for oil looks, that hasn’t stopped oil from selling off this morning on the back of yet more poor data out of China. In this case the data is the manufacturing PMI (purchasing manager’s index) for August, which as expected came in showing a slight contraction. Quite why the markets should react in such a way when the data only came in as expected is something I’ll have to ruminate on at a later time, but it is what it is. Perhaps it’s the addition of this poor data with the disappointing industrial production data in Japan yesterday which pretty much tells you to look away from East Asia if you’re seeking encouragement for global growth prospects. It can’t be much of a surprise that South Korean exports have also plummeted.

 

The news has been a sight more cheerful in Europe though. German and Italian retail sales massively beat expectations, although manufacturing PMI’s which are being published as we speak are largely indifferent. Better news in Germany is being somewhat stifled by not so good data from France and Italy. It’s all much of a muchness though.

 

Of much more interest to me have been comments over the weekend coming out of the Jackson Hole central banker conference. While it didn’t promise to be the star studded event that last year’s one was, it might just have made up for it with comments from key US policy makers. It was acknowledged that there is a significant lag between rate moves and the impact on the real economy, and so while inflation is currently no problem at all, it would be better to start moving towards higher rates now rather than being forced to react later. I fully subscribe to this view, as I’m sure you’re aware. Interestingly another Fed policy maker suggested that while events in China are being closely monitored to assess the impact on the United States and the wider global community, there remains a 50% chance that the first rate hike occurs this month. All in all some nice snippets from Jackson Hole. I was also encouraged by the fact that some speakers have acknowledged that central banks may not have as much influence as they seem to think in terms of steering inflation. Always nice to get a dose of reality.

 

So what does this all mean for FX markets in the next week? Tough to say, but I can see emerging market currencies recovering some more, if you’re not aware of it, oil has recovered some 25% from its lows early last week, on that basis resource rich currencies are lagging. I am also more disposed to view the recent equity market lows as a base from which the market can climb, I think we just had a classic buying opportunity on the recent market dip, and the scene is set for a rally from here. I see nothing altering the paradigm of dollar strength in conjunction with positive risk sentiment, so my bias is for the dollar to strengthen as well. There is a not insignificant chance that a first Fed rate hike in almost a decade could happen this month, this should be a dominating influence on the greenback in the early part of the month. For that reason I suspect there is limited downside in the dollar over the next few weeks. I’m not so sure I can say the same for the pound sterling though…

 

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