Forex & commodities on February 2, 2018: outlook


Here are my discretionary thoughts on forex and commodities. I only trade the S&P 500.
Go to the homepage for my latest thoughts on forex and commodities.

Thoughts

  1. The U.S. dollar’s price action is very weak.
  2. The smart money isn’t as bullish on the USD as you think.
  3. The Euro is overbought (monthly RSI). But it can become much more overbought.

3 pm: the U.S. dollar’s price action is very weak.
Let’s recap.

  1. The U.S. dollar isn’t going up on rate hikes.
  2. The U.S. dollar is barely going up on rising interest rates (10 year yield).
  3. The U.S. dollar went up on today’s strong jobs report, but the bounce had no follow through
  4. The U.S. dollar isn’t going up when stocks are falling. No safety haven play.

This is bearish price action. The U.S. dollar has a million reasons to go up, but it isn’t going up.

3 am: the smart money isn’t as bullish on the USD as you think.
Nominally, the COT report’s smart money is extremely bullish on the U.S. dollar. But nominal values don’t mean anything. Nominal values will forever become more and more extreme over the long term due to inflation.
That is why you have to adjust the Commercial Hedgers position as a percentage of open interest. This turns the nominal value into a range-bound %.
You can see that as a % of open interest, the smart money isn’t as bullish on the USD as at previous USD bottoms. The smart money isn’t as bullish on the U.S. dollar as most people think.
Here’s the Commercial Hedgers positions as a % of open interest, in red.

3 am: the Euro is overbought. But it can become much more overbought before a correction begins.
The Euro’s 12 month RSI is more overbought than at any point between 2009-present. Does this mean that a significant decline in the Euro is imminent?
No. If you expand the data, you’ll see that the Euro’s monthly RSI can become far more overbought in a Euro bull market and USD bear market.
In fact, the Euro’s monthly RSI being this high is a long term bullish sign! Its monthly RSI only becomes this high during a bull market.

Read Forex & commodities on February 1, 2018.

Bottom line

I only trade stocks. These are just my thoughts/outlook on other markets.

  1. Gold and silver will break above their tight range in the first half of 2018.
  2. The USD Index will crater below its final support (90-91) in the first half of 2018.
  3. The best traders I know are still bullish on Bitcoin in the short and long term. I don’t know when the crypto bubble will end.

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