Forex & commodities on July 25, 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. USDJPY is rallying ahead of tomorrow’s Fed meeting and Trump Jr. testimony. Not good for USD Index and USDJPY
  2. EURUSD was capped today. Not surprise.
  3. Gold and silver: weak compared to other commodities
  4. The USD will bottom somewhere between 92-90 and then bounce.
  5. Our sister fund will cut their 100% long USLV (3x silver ETF) position when USD falls to 92-90. Silver’s price action is too weak.

5 pm: USD is rallying ahead of tomorrow’s triggers.
The USD Index is rallying via USDJPY ahead of tomorrow’s Fed meeting and Trump Jr. testimony. This is not good for the USD Index.
Here’s EURUSD. Notice that the EURUSD’s 200 hourly moving average is fast approaching. So even if EURUSD falls on tomorrow’s trigger, EURUSD will be instantly supported.

Here’s USDJPY’s 4 hour chart. Notice how A) the 200 4h moving average resistance is close and B) the 4 hour RSI is relatively high (hourly RSI is even higher). Even if USDJPY spikes on tomorrow’s triggers, USDJPY will be instantly capped.

5 pm: EURUSD was capped today
The EURUSD is exactly capped at a massive resistance from 1 year ago.

4 pm: gold and silver are weak compared to other commodities
The weakness in gold/silver’s price action continues. Spot the outlier:

  1. Gold: -0.2%
  2. Silver: 0.2%
  3. WTI Oil: 4.55%
  4. Copper: 4%
  5. Natural gas: 1.7%

The inverse correlation between USDJPY and gold/silver is weakening. When USDJPY rallied this afternoon, gold/silver didn’t really go down.
Here’s USDJPY

Here’s gold

The good news is that gold/silver are still positively correlated with EURUSD. So until EURUSD tops (USD Index bottoms), gold/silver will continue to go up. But once EURUSD tops, gold and silver are in trouble.
6 am: the USD will bottom somewhere between 92-90.
The USD’s first big support is at 93. Markets rarely bottom exactly at a big support. Hence, 92-90 is more likely.

Previously, our sister fund wasn’t sure if the USD would bounce here. They thought the USD might merely consolidate at 92-90 before crashing through that support level.

  1. They think the USD is in a bear market.
  2. Historically, the USD crashed downwards in a vertical line when it was in a bear market (click here and here)
  3. A lot of traders will go long USD at 93-91.

Our sister fund now thinks that the USD will indeed make a sizable bounce here. Although Money Flow still supports a USD bear market, you can see that Europe’s economic data is weakening a little bit.

In a sense, Germany’s (and Europe’s) economic data is too good. No economic expansion goes up in a straight line. After months of strong growth, Germany’s economy might deteriorate a little bit. That will be enough to support a USD bounce and a EURUSD pullback.
Here’s Germany’s Ifo Business Climate Index. Notice how it never exceeds 115.

Here’s Germany’s Manufacturing PMI. Notice how it tends to top at 60.

6 am: silver’s price action is too weak.
Gold and silver are positively correlated with EURUSD and inversely correlated with USDJPY. The inverse correlation between USDJPY and gold/silver is very strong right now.
With USDJPY bouncing overnight, gold and silver are going down right now. But more importantly, gold/silver are going down a lot more than USDJPY is going up.In addition, silver is going down more than gold. Gold and silver’s price action continue to be weak. This is not a good sign for gold/silver bulls. Our sister fund will cut their 100% long USLV (3x silver ETF) position when the USD Index falls to 92-90. Gold and silver might tank when the USD bounces.

Bottom line

Gold/silver’s price action is too weak right now. Our sister fund will cut their USLV position once the USD Index reaches 92-90. This is a significant departure from their July 24 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.

2 comments add yours

    • I will go over this in a weekend post on Saturday. Sorry – I’m still setting up the website.

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