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Another Big Week for China shares?

Chart of the Day: GBP/CHF (4hr Candlesticks)
Source: GKFX / MT4 (July 12, 2020)

GBP/CHF has broken the neckline of an inverse head and shoulders pattern, in which both shoulders formed at 1.1725, matching the May 15 low.

•    China shares set to close a third week with big gains?
•    Gold: What next?
•    Day Ahead: China FDI, BOE Bailey’s speech
•    This Week: ECB, BOJ, EU Summit, US Bank Earnings, China GDP
•    CHART: GBP/CHF Inverted H&S


It was a rough week for the US dollar after haven flows dried up on optimism about new coronavirus treatments and the progress toward creating a vaccine. A 1% weekly gain in the Chinese yuan (USD/CNH) added to the pressure on the dollar as Chinese stock markets rallied. The British pound completed a second weekly gain after the UK government announced new fiscal stimulus (see GBP/CHF below).

It was a huge week for Chinese shares, which carried on a 2-week rally through Thursday before finally having a down-day on Friday. Wall Street too finished the week on a high with the Nasdaq making a fresh record high led by gains in Tesla. Other global indices in Europe and Japan edged closer to peaks made in early June.

Gold ended the week off the 9-year high below the $1800 per oz achieved on Wednesday but the uptrend remains intact. Oil had its highest weekly close since March.

“If markets were rational, I would be waiting tables for a living.” – Warren Buffett

Another China Rally

Chinese shares took off in the last week. Commentary about a “healthy bull market” in the media has a part to play but there are many reasons to think the rally in China shares is just getting started. Earnings growth is higher while valuations are much better in China than the US, China entered and exited the pandemic first and Chinese technology is going from strength to strength.  

China GDP is out Thursday and US earnings season kicks off with the big banks this week.

Where next for gold?

Gold hit a 9 year high over the $1800 per oz threshold- but can the upwards momentum continue? The basic fundamental outlook seems solid; central banks are devaluing fiat currency BUT they CAN’T devalue gold - it holds its value. However that is the big picture, in the meantime gold can fluctuate like any currency. 

In any big rebound for the dollar against other currencies, gold would probably take a hit. Remember we’ve got central bank meetings from the BOJ on Wednesday and the ECB on Thursday - which will be key drivers for the euro and the yen. 


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