Forex & commodities on January 22, 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. Why the U.S. dollar isn’t going up on capital repatriation.
  2. Copper led gold higher, and now it’s leading gold lower.

1 am: Why the U.S. dollar isn’t going up on cash repatriation.
With the Republican tax plan in effect, U.S. companies like Apple will bring back hundreds of billions of dollars over the next few years from their offshore accounts. Investors mistakenly believe that this is a big bullish factor for the USD. Here’s why they’re wrong.
For starters, the USD’s price action tells us that it will not go up on foreign capital repatriation. If this was a bullish factor, the USD would have gone up already. It’s sinking right now.

More importantly, the majority of capital that U.S. companies hold overseas is already held in USD! They don’t need to buy USD to bring it back to the U.S.. It’s just a transfer of existing currency.

Of the $2.2 trillion held offshore, only $460 billion can be POTENTIALLY repatriated as a currency conversion into U.S. dollars. Of this amount, there will be $400 billion left after-taxes. This will be brought back to the U.S. over a number of years.
Keep in mind that $5 trillion in currency is traded EACH DAY. Hence, $400 billion spread over a number of years is meaningless. There won’t be a surge in demand for USD just because companies repatriate their capital.
1 am: Copper led gold higher, and now it’s leading gold lower.
Copper led gold’s rally from December 5-28, 2017 (gold bottomed on December 12 & topped on January 16). Now copper is heading lower into a normal correction. This correlation is bearish for gold and implies that gold will enter into a correction soon before breaking out from its’ multi-year resistance.
Here’s copper.

Here’s gold.

Gold needs to breakout from multi-year resistance.

Read Forex & commodities on January 19, 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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