Well, here came the short covering rally in the precious metals. By calling it that I don’t mean that it cannot turn into something more, but today was most assuredly driven by short covering as the US dollar unwound some of its speculative sponsorship. One can assume that large speculators took it on the chin on both ends, in the USD and in gold/silver as the Commercial traders had been aligned increasingly bearish and bullish, respectively.
NFTRH has been bullish the USD and bearish the Euro, Canada dollar and Aussie dollar for quite some time now, most often using this simple weekly chart of various currencies. Months ago we noted USD creeping out of its downtrend (green dotted line) and the Euro falling out of its wedge (red dotted line). Back then, sentiment toward the USD was far different than it is today. So this week the Currency segment included some thoughts (and data) on USD and Euro sentiment as well.
Also of note, while the excerpt speculates that a USD reversal could trigger bounces in commodities and precious metals, these items generally remain bearish until proven otherwise. Not the other way around.
Now everyone knows the USD is bullish and the Euro is going to hell in a hand basket. As long as faith in paper currencies in general remains intact, I think that will be the trend. But USD is over bought to a degree that we could actually see a significant – if temporary – reversal of these trends.
“First, it is committed to experimenting even more with its use of unconventional monetary policy, including by taking the deposit rate even more negative and starting a program to purchase asset-backed securities.”
What the ECB’s Moves Mean for the World by Mohamed El-Erian
He lays out Draghi’s scheme pretty well. Read a good article by a smart man. But the problem in Europe is that the Euro strength they are trying to leverage was simply a counter trend reaction out of the first ‘acute’ phase of the Euro crisis in 2011. In essence, they are leveraging a 2 year Bear Flag (or Rising Wedge) in the Euro that always was likely to fail at the big trend line. Yeh, that should work well for Europe.
Oh but then there is Fortress America. Our currency is strong and our markets booming. Nothing wrong here! Well, we’ll see how long the ISM for example, stays strong with the USD becoming persistently strong.
Wasn’t the whole premise of the US recovery its ability to compromise Uncle Buck? I’d imagine that US stocks can go well higher on the old ‘King Dollar pulls in global liquidity’ play, but there is a shelf life here if Unc gets persistently strong with two drivers at his back; the Euro trash fest and US policy that could have its hand forced toward tightening sooner than maybe the majority now thinks.
As I wrote the other day, it is hard to know exactly what will play out when, but it sure is getting interesting.
Hey guess what? The Fed had some Minutes out today in which they ruminated about the employment market and inflation targets. Mr. Plosser was the rational one as usual, talking about what could happen if rates needed to be raised sooner than the market anticipated and other Gloomy Gus stuff like that.
Anyway, Unc got a new spring in his already bouncy step. The self-explanatory daily chart is from this morning’s pre-market NFTRH key ETF update, created before this latest burst obviously. The US dollar – so doubted by so many only a couple months ago – is now getting over bought.
I am not counting on gold going up in USD at this time because with all the anti-dollar hype and its upside reversal (from critical support) yesterday and today I am leaning bullish on Uncle Buck. The Euro on the other hand is doing this…
There is also the case of the Euro and gold, which was the center of fear and loathing in 2010 and 2011, as gold took on too many panicked sponsors. Here is the big picture monthly view of the European fear gap getting closed out. Europeans who want a long term value opportunity could be buying now (most probably aren’t) as opposed to what they actually did, which was to buy in 2011.
Two forms of money; one official but its only value is in ‘confidence’. The other is not really money, but its value is of something more than confidence. All confidence was lost in gold in 2013, so it had better have something more going for it. It is debt free as it is no one’s liability and it has been used as money for centuries.
Okay, blah blah blah… gold bug sighting above. What I wanted to actually do is show a chart of GLD & UUP looking pretty darned in line with each other over the last few months.
Whatever their differences, in the big ‘RISK ON’ environment cooked up by the Fed a couple of ‘risk off’ items have been fairly in unison outside the party. Today they are both above their 50 day MA’s.
Party on Garth.
At the risk of revealing my inner Prechter (I am a deflationist at heart because I believe the odds are better than even that the ultimate resolution of the era of Inflation onDemand will be deflationary), here is the monthly view of the US dollar, having negated the weekly H&S (not really visible on this monthly chart) by rising above the right shoulder.
An email from an NFTRH subscriber prompted me to pull up the monthly view and the recent rise has not only negated the H&S, it has brought the larger monthly basing pattern out of 2005 to a more bullish looking state, with monthly MACD green and a shape that looks pretty good.
Prechter says a coming deflation would result in a recommendation of owning cash and gold. Not even US T-bills, heretofore considered the safest repository on the planet. That is because the debts of the Federal government would be so unmanageable as to call into question its ability to make good on its obligations.
I will question how long the stock market can benefit as the world’s reserve currency helps suck funds into US assets. But US stocks for the short-term are more positively than negatively correlated to USD as the dollar sucks capital into our markets.
The Fed is trying to devalue the USD but the reserve currency is acting as a haven. The whole developed world is supposedly at [currency] war. With all those parts in motion who on earth can make total sense out of what is going on?
Maybe we do not have to make sense of every aspect of everything that is in motion now. But we should watch the USD, the kingpin lot a very sorry lot. NFTRH is going to provide space for Uncle Buck in the analysis going forward. It failed to break down and has defied the ‘death of the dollar’ cult for so long now, there must be meaning in here.
Watch commodities and the ISM’s ‘prices paid’ trend; watch out for sink holes in Goldilocks’ path as she happily skips along; watch chest beating gold bears who think they know how to read long-term charts*; watch the silver CoT (but silver bulls might want a certain loud technical analyst to refrain from making huge proclamations about it… jeez, let it breathe, silver has lower to go first); watch to see if the stock market already took its ‘healthy’ correction or has further near term downside in order to make a solid base for a final drive to SPX high 1500’s.
* TA big papa, stockchart.com’s John Murphy is becoming bearish on gold; as in possible ‘end of bull market’ bearish. He certainly does know how to read charts and is not included in this dismissive comment.
Anyhow, watch this writer continue to manage risk as fully as needed to remain good to go for coming events; and they are coming my friends.
Uncle Buck has just about negated the right shoulder of his potential H&S. A rise above 81.50 puts a stake through its big fat head.
I for one would dearly like to see the people playing magic tricks with interest rates soundly punished by the US dollar and its anti-market cohorts.
A different kind of Brent moves us along from this morning’s Cook-inspired fright fest. A subscriber requests a look at Brent Crude, S&P 500 and Uncle Buck. I am not really sure of what his objectives were, but the chart shows targets and correlations. So for people bitching about gas prices I would suggest you don’t root for Central Planning to keep trying to compromise the currency.
So if this is a currency war, how does one know which currency will be the winner? So far gold is the loser, but gold’s an easy target. Hiding in plain sight, just sitting like a lump paying no dividend because it levers to no risk. It’s a barometer.
What if just maybe the USD does not go the way the gold “community” and a market full of greed heads (see S&P 500) foresee it? It’s a war and bullets are flying all over the place. The dollar can negate its H&S above 81.50. Anyway, here’s a kooky chart of SPX and USD over the decades.
It is either get this currency devalued (they’re trying like hell, ref: money supply) or get your kevlar helmets ready for 2013. The thing is, the currency war could actually work to the opposite effect to the devaluation that Central Planning seems to have in mind. Think interest rates and markets disobeying officialdom when it is most inconvenient for most people.
Meanwhile, here’s the Yen chart from NFTRH 221 a few weeks ago.
Okay Yen, you’re at target (and everybody hates you).