Forex & commodities on January 8, 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 rig count needs to rise if oil prices are to fall
  2. The USD’s price action is very bearish.
  3. EURUSD is the most bullish forex pair

4 pm: Oil rig count continues to fall, despite rising oil prices.
This is remarkable. The U.S. oil rig count continues to fall despite rising oil prices (-5 this week to 742). If oil prices are to fall, then the U.S. oil rig count must rise. Otherwise oil will at most make a pullback under such medium-term overbought conditions.


6 am: the U.S. dollar’s price action is very bearish.
There are a million reasons for the U.S. dollar to bounce right now. Here are the main ones.

  1. “Smart money” commercial hedgers are extremely long the dollar.
  2. Merkel is at risk. If Merkel cannot form a government, the Euro will fall and the USD will rise. (Merkel’s strength and negotiation skills saved the EU in 2010 and 2012).
  3. The USD is at its final multi-year support. There are no supports below this level.
  4. The U.S.-Germany interest rate differential is at its peak. (Conventional wisdom: capital flows to countries with higher interest rates).
  5. The Fed continues to hike interest rates. (Conventional wisdom: rate hikes = bullish for a country’s currency).

Instead, the USD can barely bounce off of this support level. When a market has a million good reasons to bounce but doesn’t, there is something very wrong. This is VERY bearish price action for the medium and long term.

6 am: EURUSD is the most bullish pair.
Traders should always buy the asset that is the strongest. Traders should always buy the leader and avoid the laggard. There is usually a solid fundamental reason why laggards are laggards.
The Euro is the strongest out of all the non-U.S. currencies. Here’s EURUSD.

Here’s USDJPY. Notice that USDJPY hasn’t even approached its mid-2016 low yet (while EURUSD has vastly exceeded its mid-2016 high).

The Australian dollar is stronger than the Yen, but weaker than the Euro. It is on the verge of a massive breakout from multi-year resistance.

The Canadian dollar’s price action is weaker than the Euro. USDCAD and oil move inversely. As you can see, oil has surged while USDCAD hasn’t fallen significantly.

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. Revision: Perhaps the USD will break down sooner than I expected.
  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.

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