Forex & commodities on July 18, 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. Thursday’s BoJ and ECB meetings
  2. Individual currency pairs are close to major supports.
  3. The U.S. Dollar is literally sinking on every kind of news.
  4. Gold/silver still have some short term weakness

4 pm: Thursday’s BoJ and ECB meetings
The BoJ and ECB are meeting on Thursday, July 20.

  1. The market doesn’t expect new policies.
  2. Guessing what the central banks will say is pointless. Nobody knows.

Our sister fund thinks that the USD Index’s medium term bottom will probably occur a few days after Thursday. They said this morning that “the USD Index’s bottom typically needs a bloodbath”. These 2 triggers are the perfect excuse for that bloodbath.
Here’s how the USD’s May 3, 2016 bottom played out.

  1. USD fell from March to mid-April 2016.
  2. USD consolidated for 2 weeks. It seemed as though the USD’s bottom was in.
  3. The USD got crushed for 3 days after the Bank of Japan met on April 28.


4 pm: individual currency pairs are close to big supports.

  1. EURUSD is close to several main resistances
  2. USDCAD is close to several main supports.

The market typically needs to slightly go beyond the main support/resistance before it can reverse. It rarely stops at exactly the support/resistance.
Here’s EURUSD. $1.162 is a main resistance, and the 200 weekly moving average (at $1.81) is another main resistance.

Here’s USDCAD. Main support at $1.245, another at $1.237 (200 weekly moving average).

6 am: the U.S. Dollar Index is falling on every piece of news
Before today:

  1. The USD Index fell on rate hike news
  2. The USD Index fell on U.S. economic data news.
  3. The USD fell on ECB news.

And last night, the USD Index fell on “Trumpcare is dead” news. (In case you missed it, the Republicans attempt to reform Obamacare has failed.)
This is the U.S. dollar’s problem. In order to bottom, the USD typically needs a bloodbath (a few days of continuous selling). Right now, the USD is trying to stop at every minor support. These feeble attempts to stop the USD’s downtrend is actually preventing the USD from bottoming. The USD needs a bloodbath that will push momentum to an oversold extreme.
Here’s the USD Index’s bottom in May 2016. The USD Index fell for 6 consecutive days.

Here’s the USD’s bottom in August 2015. The USD crashed for 4 days.

Note that the above 2 cases were bull market cases. The USD is now in a bear market. So the probability of a bloodbath bottom is even higher.
6 am: some short term weakness in gold and silver
Our sister fund said that gold and silver will slowly swing higher over the next few months, with many pullbacks and corrections along the way. In fact, you can see some weakness in gold and silver right now.

  1. When EURUSD spiked last night at 9pm, gold and silver only went up a little bit.
  2. But gold and silver quickly gave back those gains, even though EURUSD did not.

*There’s a positive correlation between EURUSD and gold/silver. There’s a negative correlation between the USD Index and gold/silver.

Bottom line

Nothing has really changed since our sister fund’s July 17 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.

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