Forex & commodities on July 21, 2017: thoughts & outlook


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

Thoughts

  1. Some panic selling in the USD
  2. Other currency pairs approaching big support/resistances
  3. Very bullish gold/silver seasonality is ahead
  4. “Smart money” is increasingly bullish on the USD
  5. Silver’s price action has become increasingly bullish.
  6. Oil’s price action is turning more bullish. Starting to make higher lows!
  7. Will the USD Index even bounce once it falls to 93?
  8. A USD bear market is good for U.S. stocks
  9. Our sister fund will hold onto their silver position, even if USD bounces

4 pm: Some panic selling in the USD
The USD has finally stopped trying to bounce at every minor support. The USD is finally getting the panic selling that our sister fund predicted.

The USD has a lot of major supports in the 93-92 range. (91 is also a support. Sometimes the market will fall a little below the major support before bouncing).

Our sister fund thinks that the USD will not have a major bounce here. The odds of a bounce vs consolidation are 75-25. In the USD’s historical bear markets, the USD went down in a straight line without any major bounces along the way (click here and here).
4 pm: other currency pairs are approaching big support/resistances
Here’s EURUSD, approaching its 200 weekly moving average resistance.

USDJPY is breaking down from both its 200 daily moving average and 200 weekly moving average.
Here’s the weekly bar chart.

Here’s the daily chart.

USDCAD didn’t go up despite today’s oil rout = bearish for USDCAD. USDCAD also approaching its 200 weekly moving average support.

4 pm: very bullish seasonality for gold/silver is ahead
Seasonality doesn’t work very well in the stock market. However, seasonality works well in gold and silver.
August and September are the 2 most bullish months for gold’s seasonality. Silver’s seasonality isn’t bad either.
Here’s gold’s seasonality.

Here’s silver’s seasonality.

4 pm: smart money is increasingly bullish on the USD
Commercial hedgers are very bearish on the EURUSD.

Our sister fund thinks that in a EURUSD bull market, sentiment such as the COT report is useless. Overbought becomes even more overbought.
4 pm: silver’s price action has become increasingly bullish
A few weeks ago, gold/silver would get crushed every day from 8-10 am (that’s when volume is heaviest). Bears are still trying to crush gold/silver at this time, but they are FAILING. After falling at 9 am, silver instantly reversed back up. This is bullish price action.

4 pm: oil’s price action is turning more bullish!
Oil fell today on OPEC news. But as we noted in today’s stock market report, each successive attempt to hammer oil is getting weaker and weaker! In other words, oil is starting to make higher lows!

6 am: Will the USD even bounce once it falls to 93?
Our sister fund has said for a few days that the USD Index will only make a major bounce once it falls below 93 (a big support). Now they are not so sure.
They think that the USD might not even bounce after hitting 93. They think the USD will consolidate sideways for a few weeks after hitting 93 (instead of making a bounce) and then crash below the support. Here’s their logic.

The 93-91 level is TOO OBVIOUS of a support. Literally every trader wants to buy here and hold for a multi-week bounce. When a trade is too obvious, it usually doesn’t work.

It’s impossible to know which scenario will happen.
Scenario 1: the USD falls to 93-91, has a major bounce, then continues its bear market.
Scenario 2: the USD falls to 93-91, consolidates for a few days/weeks, then crashes right through the 91 support.
Our sister fund thinks the odds are 75-25. We think the odds are 50-50. So if you’re looking to trade the USD Index, a good idea is to scale-in between 92-91 and then wait a few days. If the USD Index doesn’t immediately bounce, then you should cut your long USD position. The fact that

  1. a lot of traders are long at 92-91 and
  2. the USD isn’t bouncing when it should

tells you that Scenario 2 is in play. You don’t want to be on the wrong side of the long term USD bear market.
*Our sister fund only trades gold/silver. Their USD outlooks impacts their gold/silver position. We only watch the USD with a passing interest. It has no impact on our S&P 500 trades.
6 am: A USD bear market is good for stocks
There have only been 2 real USD bear markets in history.
1985-1990

2002-2007

Both of these USD bear markets were accompanied by bull markets in U.S. equities. In other words, a USD bear market is good for U.S. stocks. Why?
Because a falling USD boosts U.S. corporate earnings. More than half of U.S. corporate earnings come from overseas. But more specifically, it’s the year-over-year change in USD that impacts corporate earnings.

The USD’s year-over-year change is starting to turn negative. This will boost Q3 and Q4 2017 corporate earnings.
6 am: our sister fund will hold onto their silver position, even if USD bounces
*There is an inverse correlation between USD and gold/silver
Yesterday our sister fund said that they might sell their USLV (3x silver ETF) if USD makes a big bounce after hitting 93. After some deliberation, they have decided to hold onto USLV even if the USD bounces and gold/silver make a large pullback.

  1. It’s impossible to know where the USD will bounce. 93? 92? 91? Or maybe the USD will merely consolidate around 93-91 before crashing right through (i.e. no gold/silver pullback?)
  2. The USD-gold/silver inverse correlation is not a perfect one-to-one relationship. Perhaps gold/silver will merely consolidate when the USD makes a large bounce.
  3. Our sister fund isn’t good at making short term trades. They’re sticking to their expertise (medium-long term trades).

Bottom line

Nothing about the USD has changed since our sister fund’s July 20 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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