Forex & commodities on January 15, 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. Oil’s rally won’t end without a divergence.
  2. The major commodities will go up together.
  3. The U.S. dollar’s breakdown continues.
  4. Gold and silver’s breakout continues.
  5. USDCAD is the strongest currency pair thanks to NAFTA renegotiation.

3 pm: Oil’s rally won’t end without a divergence.
I expect that oil will make a bearish divergence before it tops. A market rarely tops when momentum is insanely high, which is why a divergence is necessary. Like the S&P 500’s meltup, oil has yet to make a bearish divergence.
Here’s oil on a daily bar chart.

Here’s oil on a weekly bar chart.

3 pm: The major commodities will go up together.
The upcoming rally in gold/silver (as the USD breaks down) will lift other commodities up too. For example, there is a strong correlation between gold/silver and copper right now.
Here’s gold.

Here’s copper.

Here’s the 20 day rolling correlation between JJC (copper ETN) and GLD (gold ETF).

6 am: The USD’s breakdown continues.
After breaking down below critical support on Friday, the U.S. Dollar Index’s downtrend is accelerating. The USD’s bear market is firmly in play.

EURUSD continues to breakout.

Smart Money sentiment (from the COT Report) is heavily bullish on the USD. However, the Smart Money is wrong at bull-bear inflection points. When the Smart Money is heavily bullish in a USD bear market, they are forced to cover their positions as the USD goes down. The Smart Money isn’t always right.
The Smart Money is already starting to cover their long USD positions as the USD goes down. I expect the USD to fall over the next few months while the Smart Money continues to cover their long USD positions.

6 am: Gold and silver’s breakout continues
I said on Friday that gold and silver are on the verge of breaking out above multi-year resistances.
Gold and silver are breaking out today as the USD breaks down. There is an inverse correlation between the USD and gold/silver right now.
Here’s the correlation between UUP (USD Index etf) and GLD (gold etf). Notice how their inverse correlation is becoming stronger.

There is also a moderately inverse correlation between the U.S. dollar (UUP) and silver (SLV).

Silver is up much more than gold today (silver +1.3%, gold +0.6%). This means that the gold:silver ratio is falling, which is a bullish sign for precious metals.
6 am: USDCAD is the strongest forex pair thanks to NAFTA renegotiation talks.
While other pairs like EURUSD are breaking out, USDCAD has been unable to break down. This is not a bullish abnormal sign for the USD. It’s merely the result of ongoing NAFTA renegotations.
I don’t expect the USDCAD to completely breakdown until late-January, when the next round of NAFTA renegotiation talks are over.

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.

2 comments add yours

  1. Troy, can you explain why a bullish USD ETF like UUP looks like your bearish USD chart, and UDN is the inverse? It looks like UDN is the way to play dollar weakness, although it is a “bearish” ETF.

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