Forex & commodities on December 27, 2017: thoughts & outlook


Here are my discretionary thoughts on forex and commodities (oil, gold, silver, etc). I only trade the S&P 500.
Go to the homepage for my latest thoughts on forex and commodities.

Thoughts

  1. Copper has gone up 14 days in a row. Not necessarily a short term bearish sign.
  2. Silver is being lifted up by copper’s rally.
  3. Bitcoin’s bearish seasonality in January = gold’s bullish seasonality in January.
  4. The USD (and Euro) will probably breakout from this narrow range in late-January 2018.

4 pm: Copper’s short term momentum is strong.
Copper has gone up 14 days in a row, tying its longest streak in history. Is this a short term bearish sign? No, it’s mostly irrelevant to copper’s short term.
Copper’s 14 daily RSI is rather low despite its winning streak. Copper’s RSI can go higher. Copper prices can also go higher after its RSI hits 80.

1 pm: Silver is being lifted up by copper’s rally.
Silver and copper have been positively correlated since December 13.
Here’s silver.

Here’s copper.

Copper’s breakout is on news of supply disruptions (see Bloomberg).
Gold and silver’s correlations with other markets are very messy right now. On some days they’re positively correlated with copper. On other days they’re inversely correlation with the USD. You just don’t know which market gold/silver will follow on any given day.
5 am: Bitcoin’s seasonality fits with gold’s seasonality.
There is an inverse correlation between gold and Bitcoin right now. If Bitcoin goes down in January (Bitcoin’s seasonality is bearish in January), then gold goes up in January. January is ALSO seasonally bullish for gold! Gold has gone up every January over the past 4 years.
Here’s gold’s seasonality.

4 am: USD will make a mini-breakout in late-January
I said in my medium-long term discretionary outlook for USD

I think the USD will remain range-bound in the first half of 2018. Then it will break below the 90 support level in the second half of 2018.

This range is a big range.

The USD Index has compressed into a smaller range of 91-95 since September 2017.

The USD will either break above or break below this range in late-January 2018. Merkel’s deadline for forming a grand coalition with the SPD is mid-January. If she cannot form a coalition, she will form a minority government.
This is a news-driven trade, so this will be a very difficult trade unless you can guess the outcome of this political event. The best course of action is to wait for the market’s reaction post-event.

  1. If the Euro jumps on a grand coalition news, then you know that the USD’s bear market has resumed. Expect the USD Index to break down significantly below 90. The USD’s multi-year consolidation between 90 and 100 is over.
  2. If Merkel forms a minority government and the Euro tanks, I think the USD will rally to at least 96.
  3. If Merkel forms a minority government and the Euro DOESN’T tank, then the USD is dead. This means that the Euro can’t even go down on bearish news.

The USD’s medium term is confusing. It’s a 50-50 bet right now. The long term is clear.

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