Forex & commodities on January 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. “Smart money” is very bullish on the USD. But they can be very wrong.
  2. A big reason why the USD went down in 2017.
  3. Gold is up 10 days in a row. What this means…
  4. Copper is leading gold.

3 pm: “Smart money” is very bullish on USD. They’re not always right.
“Smart money” = hedgers in the COT report. “Smart money” is essentially contrarian. The “smart money” turns bullish when the USD falls and vice versa.

But you’ll notice that the smart money is forced to cover during the USD’s bear markets. The “smart money” can be very wrong.

3 pm: why the U.S. dollar went down in 2017
Money flow ultimately determines the long term direction of currency pairs. There were massive inflows into European and Emerging Market stocks in 2017. Investors/traders were attracted by significantly lower stock valuations. Some emerging markets have single digit valuations, while the U.S. stock market has a P/E of 26! Here’s EEM, the Emerging Markets ETF.

Here’s the USD Index.

EEM was up 33% in 2017 while the S&P was up 20% as a result of Money Flow. The USD Index will continue to go down over the long term as more money flows into emerging markets over the next few years. This is a long term bearish factor for the USD.

  1. Emerging markets will have stronger economic growth than the U.S. over the next few years because their economies are more volatile than the U.S.’.
  2. Emerging market stocks are more volatile than U.S. stocks. Emerging markets outperformed the U.S. stock market during the global bull market that ended in 2007!

8 am: Gold is up 10 days in a row. This is the 2nd longest historical streak
Gold closed higher for the 10th day in a row yesterday. The last time gold went up this many consecutive days was April 13, 2007. This is what happened next.

Gold went up for 1 more week before making a 2 month correction. This is very similar to copper, which also set a new record.
At the very least, this is a short term bearish sign for gold.
8 am: copper is leading gold and silver.
Copper bottomed on December 4 and has surged until January 1.

Gold bottomed on December 12 and has surged until the present. In other words, copper’s rally has led gold’s rally.

If copper has topped, then gold will make a short term top in the next few days too.

Bottom line

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

  1. Gold and silver will remain within their wide range during the first half of 2018. Then gold and silver will rally strongly in the second half of 2018.
  2. The USD Index will remain within this range (i.e. 90-96) during the first half of 2018. Then the USD will crater below this range in the second half of 2018.
  3. The best traders I know are still bullish on Bitcoin in the short and long term. I agree with them only to the extent that this bubble has a few months left. See “the pigs are flying” in this post.

2 comments add yours

  1. I like your style Try. Short and clear. To the subject. Excellent work and deep vision. Thank you and keep up the good work for the community of traders that follow you on social media.

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