Forex & commodities on January 19, 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. Stocks and commodities will rally together over the next 2 years.
  2. The global inflation theme is bullish for interest rates.
  3. The ECB will be forced to taper in 2018. This is bullish for the Euro.

2 pm: stocks and commodities will rally together over the next 2 years.
Some investors think that when this bull market in equities ends, money will flow out from stocks, into commodities, and generate a commodities bull market. I disagree. I believe that this commodities bull market will coincide with the last 2 years of this equities bull market. When the equities bull market ends, the bull market in commodities will end as well.
From a logical perspective, the U.S. stock market and economy move in sync over the long run. The economy will enter into a recession when the stock market enters into a bear market. Recessions are bearish for commodities because economic demand falls!
History also proves that gold’s bull markets occur when the U.S. stock market is going up. Gold falls when the U.S. stock market enters into a bear market.
*Gold represents the commodities family.
Here’s gold.

Here’s the S&P 500.

8 am: the global inflation theme is bullish for interest rates
Yesterday I demonstrated that global inflation is on the rise. This is because oil & commodity prices are in a new bull market. Inflation will push interest rates higher. Hence, the long multi-decade bear market in rates is over.
There is a tight correlation between oil (inflation) and interest rates right now.

Oil is insanely overbought on the weekly bar chart. When momentum is this high, oil typically needs a bearish divergence before it can begin a correction. This scenario fits with the oil-10 year yield correlation.

  1. Oil continues to rally, but makes a bearish divergence.
  2. The 10 year Treasury yield rises to e.g. 2.9% or 3%.
  3. Then oil and the 10 year yield begin a correction together.

8 am: the ECB will be forced to taper in 2018. This is bullish for the Euro
The ECB has avoided tapering its massive QE program for years because Eurozone inflation has been low. This low-inflation environment is about to change.
The Eurozone PMI Price Pressures Index is an excellent leading indicator for Eurozone inflation. The Index is stating that Eurozone inflation will jump in 2018 (i.e. in the next few months). Hence, I believe that the ECB will begin tapering QE by no later than Q3 2018.

This is a medium-long term bullish factor for the Euro and a bearish factor for the USD.
Read Forex & commodities on January 18, 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.

4 comments add yours

  1. I am one of those who thought when stock market enters its bearish phase, money will flow out the stock market to something stable which is gold. If this is not the case, where will the money go? Cash? Thanks.

  2. Why are recessions bearish for commodities? I thought during recessions the safety trade is to stock pile into gold, tangible assets?

    • No. Recessions = economic downturn = less demand for commodities.
      Historically, recessions have been bearish for gold.

Leave a Comment