Forex & commodities on July 20, 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. As expected, the USD Index is falling towards its main support.
  2. There is clear short term weakness in gold and silver

5 pm: USD Index entering into bloodbath phase
As our sister fund expected yesterday, the USD Index is entering into a bloodbath phase. EURUSD will be the main driver of the USD’s bear market.
There was nothing surprising at today’s ECB meeting. Yet the EURUSD still jumped while the USD Index tanked. This is completely normal for a USD bear market. Money Flow is moving away from the U.S. to Europe and China as the European and Chinese economies catch up.
It’s worth noting that the EURUSD impacted all other currency pairs today. Prior to the ECB’s announcement, USDJPY actually went up a little! But on the ECB announcement, EURUSD went up, which dragged USDJPY down. The bottom line is simple. USDJPY can try to rise all it wants. But if EURUSD is going up in the long term, USDJPY can forget about going up. The key is to watch EURUSD and ignore other currency pairs.
Our sister fund still thinks that the USD Index will have to fall to 93 before it can make a major bounce.

5 pm: clear short term weakness in gold and silver
There is a strong intraday correlation between EURUSD and gold/silver. However, gold and silver are weak.

  1. When EURUSD surged today from 8-10 am, gold and silver went up a little
  2. When EURUSD consolidated from 10am – present, gold and silver gave up most of those gains.

So when the USD Index falls to <93 and then bounces, gold/silver will likely make a large pullback on the bounce.
That’s why our sister fund might sell their USLV (3x silver ETF) when the USD Index falls to 93. Gold and silver’s medium-long term is still bullish, but there’s a very high chance that gold and silver will make a large pullback.

Bottom line

Nothing about the USD has changed since our sister fund’s July 19 market outlook. However, gold/silver’s short term outlook is becoming more bearish.

  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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