Forex & commodities on July 11, 2017: thoughts & outlook


These are our sister fund’s thoughts on the currency and commodities markets. They trade gold/silver using a discretionary approach. We trade the S&P 500 using our quantitative models.
*Go to our homepage for their latest thoughts. We update this webpage throughout the day.

Thoughts

  1. Gold/silver inverse correlation with the U.S. dollar
  2. Nothing can push the USD up.
  3. Euro is much more bullish than the Yen.
  4. Medium term risk:reward in gold/silver favors the bulls.
  5. The U.S. dollar can go down while interest rates go up.
  6. USDJPY is still trying to break its resistance.

5pm: Gold/silver inverse correlation with USD
There is an hour-to-hour inverse correlation between precious metals and the U.S. dollar. (Positive correlation between gold/silver and EURUSD).

  1. EURUSD went up from 8 am – 2 pm.
  2. Gold/silver went up from 8 am – 2 pm.
  3. However, silver is more bullish than gold. Gold flattened from 2-4 pm while silver went up from 2-4 pm.
  4. Gold:silver ratio is coming down to 76.7 Bullish sign.


As long as the USD is in a bear market and EURUSD is in a bull market, gold/silver will be in a gold market.
3 pm: Nothing can push the USD up.
News about Donald Trump Jr came out today. The USD Index still fell. This is normal for a USD bear market (e.g. 1985-1990, 2002-2007).
Nothing can push the USD up. The USD failed to make a “safety haven” play today. The USD got hammered.
The USD isn’t going up on a “rate hike” theme or “Trump pro-growth policy” theme. This is because the EU’s economy is improving, and everyone knows that the ECB will tighten monetary policy. It’s not a market of “if”. It’s only a matter of “when”.
3 pm: Euro is more bullish than the Yen
EURUSD is going up much more than USDJPY is falling. This is why USD bulls are dead. Ultimately, the EURUSD determines the USD Index’s direction (Euro accounts for 57% of the USD Index). As long as EURUSD is going up, USDJPY can forget about a massive rally.
6 am: It’s impossible to know if gold/silver will fall a little more. But risk:reward favors the bulls.
*Gold and silver move in tandem.
Silver has yet to retrace 61.8% of its post-flash crash bounce. As our sister fund mentioned yesterday, most flash crashes are followed by at least a 61.8% retracement. Silver has only retraced 50% thusfar.

Hence, it is impossible to know if silver (and gold) will selloff a little more in the short term. In times like this, you can only trade from a medium term risk:reward perspective. Your have to ignore the short term, which is anyone’s guess. The medium term risk:reward profile heavily favors the bulls.
6 am: The USD isn’t going up despite rate hikes.
Analysts are still scratching their heads about the USD’s decline. “Why is the USD going down while U.S. interest rates are going up? This doesn’t fit with economic theory!”
Analysts will continue to scratch their heads because economic theory is wrong. As our sister fund mentioned last weekend, interest rates are only one of many factors that impact currencies.
Analysts said these exact words in 2003-2007 when rates went up while the USD fell.
Here’s the 10 year Treasury yield.

Here’s the USD Index (all values multiplied by 100).

Analysts said these exact words in 1977-1979 when rates went up while the USD fell.
Here’s the 10 year yield.

Here’s the USD.

6 am: USDJPY is still trying to break its resistance
USDJPY is trying to break its resistance, but EURUSD isn’t going down. The USDJPY’s daily momentum (RSI) is overbought.
Here’s USDJPY’s daily chart.

Here’s EURUSD’s hourly bar chart. EURUSD is still supported on its 200 hourly moving average.

It’s hard for USDJPY to soar without EURUSD going down.

Bottom line

Nothing has really changed since our sister fund’s July 10 market outlook.

  1. Our sister fund thinks that the U.S. dollar (USD Index) is in a bear market. Money Flow determines the U.S. dollar’s bull/bear markets. Right now, money is flowing away from the U.S. to Europe and emerging markets.
  2. Our sister fund thinks gold and silver are in bull markets.
  3. Our sister fund has been 100% long USLV (3x silver ETF) since June 30, 2017. Entry price: silver was at $16.62, USLV was at $11.84.
  4. Our sister fund makes medium-long term investments.

Leave a Comment