Forex & commodities on February 5, 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 bearish
  2. The gold:silver ratio. A long term bullish sign for precious metals.
  3. A correction in stocks will = a correction in oil, gold, and silver.
  4. Will the U.S. dollar’s bear market last until the end of 2019?

4 pm: the U.S. dollar’s price action is bearish.
There is an inverse correlation between the U.S. dollar and stock market right now. The stock market is cratering, but the U.S. dollar is hardly bouncing. This is weak and bearish price action. The U.S. dollar isn’t going up on a “safety haven” theme.


3 am: the gold:silver ratio. A long term bullish sign for precious metals.
The gold:silver ratio is useful in predicting tops & bottoms in precious metals. Here’s the ratio’s long term chart.

Notice how the ratio continues to bump up against 80 right now. This is a long term BUY signal. Historically, a ratio of 80 is very close to major bottoms in precious metals.
Here’s silver’s chart. Silver’s chart is clearer than gold’s.

Here’s gold.

There was 1 exception to this rule. Gold and silver fell in the late 1990s even though the ratio had already reached 80. This is because central banks were dumping precious metals en masse at the time. Today, central banks are buying precious metals in anticipation of a surge in inflation.
I expect the gold:silver ratio’s peak to already be in. This is a long term BUY signal for precious metals.
3 am: a correction in stocks will = a correction in oil/gold/silver & a bounce in the U.S. dollar
Cross-asset correlation has surged over the past 3 months. Oil, gold, silver, stocks, yields went up while the U.S. dollar went down.

Various studies suggest that the stock market is in a 6%+ “small correction” right now. If this is the case, then oil, gold, silver, and other commodities will make a correction with the S&P 500. Oil’s weekly momentum is extremely overbought right now, which strengthens the case for a commodities correction.

Based on this correlation, the U.S. Dollar Index will also bounce while the stock market makes a correction. I expect this bounce to be small. The U.S. dollar’s price action is very weak right now.
3 am: will the U.S. dollar’s bear market last until the end of 2019?
The U.S. dollar is in a bear market because inflation will rise over the next 2 years. I think the U.S. dollar’s bear market will last until at least the end of 2019.
The U.S. dollar had 2 historical bear markets:

  1. 1985-1992
  2. 2002-2008

During these bear markets, the first big downleg lasted approximately 3 years. There were no big bounces in the U.S. Dollar Index until these downlegs ended.

The U.S. Dollar’s current bear market began in 2017. Using this TIME analogue, I believe that the U.S. dollar’s bear market will last until AT LEAST the end of 2019 (3 years).
Read Forex & commodities on February 2, 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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