Forex & commodities on December 13, 2017: thoughts & outlook


Here are my discretionary thoughts on forex and commodities (oil, gold, silver, etc). I only trade the S&P 500’s ETFs.

Thoughts

  1. Gold and silver soared when the USD and interest rates got crushed.
  2. This is a trader’s market for currencies.
  3. Yellen will probably be hawkish at today’s FOMC press conference.
  4. How the Republican tax plan impacts the USD

3 pm: Gold and silver surged when the USD and Treasury yields got crushed today.
There is an inverse correlation between gold/silver and USD/interest rates right now.
I said that gold and silver typically bottom after making a momentum divergence. They are in the process of making a divergence right now via this short term bounce.


3 pm: This is a trader’s market.
The USD is a short term trader’s market right now. It frustrates medium term longs and shorts because it remains range-bound from a long term perspective (i.e. there is no clear and strong trend).
Today’s USD decline found support at the 200 hourly moving average.

I did not expect the USD to get crushed today. Both the FOMC rate hike and tentative tax deal should have pushed the USD higher. But considering the positive correlation between interest rates and USD right now, it’s not surprising that the USD got crushed once interest rates got crushed.

I still think the USD will go up to at least 96.
5 am: Yellen will probably be more hawkish than expected.
There are signs of froth in various financial markets. Look no farther than Bitcoin. The only reason why Bitcoin can be in such a large bubble is because there is too much money in this world. People literally have nowhere to speculate, so they’ve decided to speculate thin air. Who can we thank for the excessive liquidity? Central banks (starting with the Federal Reserve).
This is Yellen’s final meeting. And with froth in the air, Yellen will probably give a final warning about the speculative exuberance that’s sweeping financial markets. It’s the truth, and with Yellen leaving the Fed, she finally has a chance to speak the truth. This will be more hawkish than expected.
Perhaps this hawkishness will push the U.S. dollar up in the very short term.
5 am: How the Republican tax plan impacts the USD
Under the current tax regime, U.S. companies don’t have to pay taxes on their overseas earnings if they don’t bring that money back to the U.S. Under the proposed Republican tax plan, the U.S. will tax companies on their overseas earnings EVEN if those companies don’t bring that money back to the U.S.
As a result, it no longer makes sense for U.S. companies to keep their cash overseas. They’re going to be taxed at U.S. rates anyways! This is why many investors believe that U.S. companies will repatriate hundreds of billions (if not >$1 trillion) in cash if the Republican tax plan passes into law.

2 comments add yours

  1. Troy, I got crushed shorting gold at 1253 after the fed announcement , do you think I should cover this short or do u think the dollar rallies from here and gold prices continue to fall? Perhaps the selling in gold the past two weeks was a bear trap?

    • Hi Matt,
      Predicting the market direction is very different from trading. I don’t trade gold, so I don’t know how to set a stop loss for it.
      That being said, I think it’s 70% likely that gold goes down. Don’t take my word for it, because I don’t have a good understanding of gold the way I do the S&P

Leave a Comment