Forex & commodities on July 19, 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. Bank of Japan is removing its inflation target
  2. The USD Index is trying to stop at every support. This is prolonging the bulls’ pain.
  3. USDJPY bearish signs.
  4. Gold and silver are underperforming EURUSD

5 pm: Bank of Japan plans to remove its inflation target
Word on The Street is that the BoJ plans to remove its inflation target at tomorrow’s meeting. This is important because the inflation target justifies the BoJ’s infinite QE. Now that the BoJ recognizes Japanese inflation might never reach its target (for structural reasons), the justification for infinite QE is gone. Like the ECB, the BoJ will eventually be forced to tighten monetary policy. Central banks can’t fight the market forever.
6 am: the USD is trying (and failing) to bounce at every minor support.
Like our sister fund said yesterday, the USD trying to bounce at every minor support is actually bearish for the USD. The USD needs to fall for a few consecutive days to get the daily RSI really low. That’s the only way the USD can make a meaningful bounce. Otherwise, all of these small and feeble bounces will be sold again and again by the bears.

6 am: USDJPY bearish signs
USDJPY used to be much more bullish than EURUSD was bearish. Now, USDJPY is more bearish.

  1. EURUSD fell from 12 pm yesterday to 3 am this morning.
  2. USDJPY did not go up at all.

This is a bearish development for USDJPY and the USD Index.
6 am: gold and silver are weaker than EURUSD
There is a positive correlation between gold/silver and EURUSD. However, the gold/silver-EURUSD relationship is rather weak.
When EURUSD went up yesterday, gold and silver didn’t go up a lot. When EURUSD fell this morning, gold and silver went down a little too.
Our sister fund thinks that gold and silver will make a large pullback when the USD Index bounces after it reaches its 93 main support level.

Bottom line

Nothing has really changed since our sister fund’s July 18 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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