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By HaleStewart July 27, 2015 8:12 am
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International Preview For the Week of July 27-31

     While all eyes will be on the Fed’s announcement later this week, keep your eye on Brazil, which releases its policy statement on the same day.  CPI increased from 6.5% in July of last year to 8.89% in its latest reading.  The central bank has raised rates 175 basis points since September in an attempt to stave off the increase.  However, they have had little impact thanks to a plummeting exchange rate.  This situation is a microcosm of the problems faced by Latin American commodity exporters, who have seen their currencies drop over the last year.

     Thanks to a solid 2H14 economic performance and potential interest rate increase, the dollar has been in a strong rally since mid-2014.  In contrast, the EU is just beginning its version of QE, Canada is probably in a technical recession, Japan is still easing and Australia is trying to deal with the commodity export slowdown.  As a result, the 5-year charts of these four currency pairs are very dollar bullish and should remain so:

    Copper’s long-term chart is very bearish.  It contains six failed rallies; the last three started at progressively lower levels.  Prices are now at their lowest level in five years.   This is the end result of several factors: the overall Chinse slowdown and a massive build-out in this sector that greatly increased supply:

     Oil rose to the lower 60s after forming a double bottom from its long sell-off last year.  Since then it has moved lower thanks to the Saudi’s continued production and the possibility that Iran will again join the world of oil exporters.  This has very important bearish implications for central banks and their respective policy, as low oil prices lower overall inflation.   

 

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