The Week Ahead – Economic Data, Monetary Policy, and COVID-19 in Focus

On the Macro

It’s quieter week ahead on the economic calendar, with 51 stats in focus in the week ending 6th August. In the week prior, 71 stats had also been in focus.

For the Dollar:

From the private sector, ISM Manufacturing and Non-Manufacturing PMIs for July will be in focus.

Expect the Non-Manufacturing PMI due out on Wednesday to have the greatest impact.

On the labor market front, ADP nonfarm employment change and weekly jobless claims figures on Wednesday and Thursday will also influence.

Nonfarm payrolls at the end of the week, however, will be the key stat of the week.

In the week ending 30th July, the Dollar Spot Index fell by 0.79% to 92.174.

For the EUR:

It’s a busy week on the economic data front.

Private sector PMIs for Italy and Spain together with finalized numbers for France, Germany, and the Eurozone will influence.

Expect Italy and the Eurozone’s PMIs to be key in the week.

German and Eurozone retail sales figures will also influence, with consumption key to a sustainable economic recovery.

For the week, the EUR rose by 0.84% to $1.1870.

For the Pound:

It’s a relatively quiet week ahead on the economic calendar.

Finalized private sector PMIs for July are due out on Monday and Wednesday.

Expect any revisions to the services PMI to have a greater impact in the week.

Construction PMIs also due out, should have a muted impact, however.

While the finalized numbers will influence, the Bank of England monetary policy decision on Thursday will be the main event.

Last week, the IMF talked up the outlook for the British economy. It now rests in the hands of the BoE.

The Pound ended the week up by 1.13% to $1.3904.

For the Loonie:

It’s a busier week ahead on the economic calendar.

Trade data on Thursday and employment change figures on Friday will be the key numbers.

While trade figures will influence, expect the employment change figures to have a greater impact.

The Loonie ended the week up 0.71% to C$1.2475 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Manufacturing sector data, building permits, retail sales, and trade data will be in focus.

Retail sales and trade data, due out on Wednesday and Thursday, will be the key stats of the week.

On the monetary policy front, however, the RBA monetary policy decision on Tuesday will be the main event.

The Aussie Dollar ended the week down by 0.30% to $0.7344.

For the Kiwi Dollar:

It’s a quiet week ahead. Mid-week, employment change figures will draw interest ahead of inflation expectation numbers on Friday.

With little else for the markets to consider in the week, expect both sets of numbers to provide direction. The markets are expecting a further pickup in inflationary pressures…

The Kiwi Dollar ended the week flat at $0.6974.

For the Japanese Yen:

Finalized private sector PMIs and Tokyo inflation figures will be in focus in the 1st half of the week.

Expect any revision to the PMIs to be of greater influence.

Late in the week, household spending figures will also draw interest.

The Japanese Yen rose by 0.75% to ¥109.720 against the U.S Dollar.

Out of China

It’s a busier day, with private sector PMIs to provide the markets with direction.

Following NBS numbers from the weekend, the market’s preferred Caixin manufacturing PMI will set the tone. Over the weekend, the NBS Manufacturing PMI fell from 50.9 to 50.4…

With service sector activity a greater component of the economy, Wednesday’s services PMI will also influence, however.

The Chinese Yuan ended the week up by 0.31% to CNY6.4614 against the U.S Dollar.

Geo-Politics

Russia and China continue to be the main areas of interest for the markets. News updates from the Middle East will also need continued monitoring…

U.S Mortgage Rates Rise but Remain Well Below the 3% Mark

Mortgage rates rose for the first time 5-weeks in the week ending 29th July.

Following a 10 basis points decline from the previous week, 30-year fixed rates increased by 2 basis points to 2.80%.

While on the rise, 30-year mortgage rates have risen just once beyond the 3% Since 21st April.

Compared to this time last year, 30-year fixed rates were down by 19 basis points.

30-year fixed rates were still down by 214 basis points since November 2018’s last peak of 4.94%.

Economic Data from the Week

It was a quiet first half of the week on the U.S economic calendar.

Economic data included house price figures alongside durable goods and consumer confidence numbers.

A pickup in consumer confidence in July and a continued rise in durable goods orders were key in the week.

On the monetary policy front, the FED left policy unchanged mid-week, which was in line with market expectations. While delivering a positive economic outlook, FED Chair Powell continued to downplay any tapering plans.

After a risk-off start to the week, positive IMF economic growth forecasts for the U.S delivered further support to riskier assets in the week.

A continued rise in new COVID-19 cases globally remained a test market risk appetite, however.

Freddie Mac Rates

The weekly average rates for new mortgages as of 29th July were quoted by Freddie Mac to be:

  • 30-year fixed rates rose by 2 basis points to 2.80% in the week. This time last year, rates had stood at 2.99%. The average fee remained unchanged at 0.7 points.
  • 15-year fixed declined by 2 basis points to 2.10% in the week. Rates were down by 41 basis points from 2.51% a year ago. The average fee remained unchanged at 0.7 points.
  • 5-year fixed rates fell by 4 basis point to 2.45%. Rates were down by 49 points from 2.94% a year ago. The average fee fell from 0.4 points to 0.3 points.

According to Freddie Mac,

  • Home owners and buyers continue to benefit from some of the lowest mortgage rates of all-time.
  • Largely due to the current environment, the 30-year fixed-rate remains below 3% for the 4th consecutive week, while the 15-year fixed-rate hits another record low.

Mortgage Bankers’ Association Rates

For the week ending 23rd July, the rates were:

  • Average interest rates for 30-year fixed with conforming loan balances decreased from 3.11% to 3.01%. Points decreased from 0.43 to 0.34 (incl. origination fee) for 80% LTV loans.
  • Average 30-year fixed mortgage rates backed by FHA decreased from 3.08% to 3.03%. Points rose from 0.31 to 0.35 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 3.13% to 3.11%. Points decreased from 0.32 to 0.27 (incl. origination fee) for 80% LTV loans.

Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, increased by 5.7% in the week ending 23rd July. In the week prior, the index had fallen by 4.0%.

The Refinance Index increased 9% and was 10% lower than the same week a year ago. The index had fallen by 3% in the previous week.

In the week ending 23rd July, the refinance share of mortgage activity increased from 64.9% to 67.2%. The share had risen from 64.1% to 64.9% in the week prior.

According to the MBA,

  • The 10-year Treasury yield declined last week as investors grew concerned about increasing COVID-19 case counts and the downside risks to the current economic recovery.
  • Refinance applications jumped in response to 30-year fixed rates falling to their lowest level since Feb-2021. The 15-year fell to another record low dating back to 1990.
  • The purchase index fell for the 2nd consecutive week to its lowest level since May-2020 and has now declined on an annual basis for the past 3-months.
  • Potential buyers continue to be put off by extremely high home prices and increased competition.
  • The FHFA reported that May home prices were 18% higher than a year ago, continuing a 7-month upward trend.

For the week ahead

It’s a busier first half of the week. Economic data includes private sector PMIs and ADP nonfarm employment change figures.

We can expect the ISM Non-Manufacturing PMI and ADP nonfarm employment change figures to be key.

From elsewhere, private sector PMI figures from China and the Eurozone will also influence market risk sentiment,

Away from the economic calendar, COVID-19 news updates will remain a key driver, however.

European Equities: A Week in Review – 30/07/21

The Majors

It was another choppy week for the majors in the week ending 30th July, with the majors taking another slide to kickstart the week.

The DAX30 fell by 0.80%, while the CAC40 and the EuroStoxx600 ended the week with relatively modest gains of 0.67% and 0.05% respectively.

Concern over the continued rise in new Delta variant cases weighed on the markets and sentiment towards the economic outlook.

Mixed economic data from Germany, in particular, also pressured the markets in the week.

There were a number of support avenues for the majors, however.

Upward growth revisions from the IMF for advanced economies, a dovish FED, and corporate earnings provided support.

GDP numbers from France and the Eurozone were also ahead of forecasts at the end of the week. The data limited the damage in what was a bearish end to the week.

The Stats

Through much of the week, the German economy was in focus.

Business and consumer sentiment figures delivered mixed results. While business sentiment waned in July, consumer confidence remained unchanged, in spite of the reopening of economies.

Unemployment figures from Germany were upbeat. The unemployment fell from 5.9% to 5.7% in July.

Inflationary pressures continued to surge, however, with Germany’s annual rate of inflation accelerating in July to 3.8%.

At the end of the week, 1st estimate GDP numbers and prelim inflation figures were the key stats of the week.

Quarter-on-quarter, the French economy grew by 0.9% versus a forecasted 0.7% in the 2nd quarter.

Germany saw growth of 1.5%, falling short of a forecasted 1.9%. In the 1st quarter, the economy had contracted by 2.1%.

For the Eurozone, the economy grew by 2.0%, coming in ahead of a forecasted 1.5%. The economy had contracted by 0.3% in the previous quarter.

Inflation also ticked up, aligned with member state numbers. According to prelim figures, the Eurozone’s annual rate of inflation accelerated from 1.9% to 2.2% in July, rising above the ECB’s 2% target.

From the U.S

Consumer sentiment and durable goods orders drew attention early in the week.

In June, durable goods orders ex transportation rose by 0.3%, following a 0.5% increase in May.

More significantly was a pickup in consumer confidence in July. The CB Consumer Confidence Index rose from 128.9 to 129.1. Economists had forecast a decline to 126.0.

On Thursday, jobless claims and 2nd quarter GDP numbers were in focus. The stats were skewed to the negative, however.

In the 2nd quarter, the U.S economy grew by 6.5%. This fell well short of a forecasted growth of 8.5%.

Jobless claims also fell short of expectations, with initial jobless claims falling from 424k to 400k. Economists had forecast a decline to 370k.

At the end of the week, personal spending and inflation figures came in ahead of forecasts, however.

Personal spending rose by 1.0% in June, with the annual rate of inflation seeing a pickup from 3.4% to 3.5%.

While the stats were material, the FED monetary policy and press conference were the main events of the week.

In line with market expectations, the FED left policy unchanged. The FED Chair also looked to assure the markets that there would be no near-term moves, the guidance considered dovish.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Daimler rose by 0.32% to buck the trend in the week. Continental slid by 2.49% to lead the way down, however. BMW and Volkswagen also struggled, ending the week down by 1.64% and by 1.34% respectively.

It was also a mixed week for the banking sector. Deutsche Bank rose by 1.18%, while Commerzbank fell by 0.18%.

From the CAC, it was a bullish week for the banks. BNP Paribas and Soc Gen rose by 1.74% and by 1.06% respectively, with Credit Agricole gaining 0.77%.

The French auto sector also found support with Stellantis NV and Renault seeing gains of 2.64% and 2.59% respectively.

Air France-KLM slipped by 0.05%, however, while Airbus rallied by 3.77%.

On the VIX Index

It was a back into the green for the VIX.

In the week ending 30th July, the VIX rose by 6.05%. Partially reversing a 6.78% fall from the previous week, the VIX ended the week at 18.24.

3-days in the green from 5 sessions, which included a 10.13% jump on Tuesday delivered the upside.

For the week, the NASDAQ fell by 1.11%, with the Dow and the S&P500 ending the week down by 0.36% and by 0.37% respectively.

VIX 310721 Daily Chart

The Week Ahead

It’s a relatively busy week ahead on the economic calendar.

Private sector PMIs for Italy and Spain will be in focus. Finalized numbers for France, Germany, and the Eurozone are also due out.

Any revisions to prelim numbers and Italy’s PMIs will likely draw the greatest interest.

Early in the week, Eurozone and German retail sales figures will also be key, however. The ECB is looking for a consumption driven economic recovery.

Later in the week, the ECB Economic Bulletin and member state trade data will also be in focus.

From the U.S, ISM Manufacturing and Non-Manufacturing PMIs will be key through the 1st half of the week.

On the labor market front, however, ADP nonfarm employment change, weekly jobless claims, and nonfarm payrolls will also influence.

Away from the economic calendar, corporate earnings and COVID-19 news updates need continued monitoring.

The Weekly Wrap – A Dovish FED and Weak Stats Left the Greenback in the Red

The Stats

It was a busy week on the economic calendar, in the week ending 30th July.

A total of 71 stats were monitored, which was up from 33 stats in the week prior.

Of the 71 stats, 37 came in ahead forecasts, with 30 economic indicators coming up short of forecasts. There were 4 stats that were in line with forecasts in the week.

Looking at the numbers, 42 of the stats reflected an upward trend from previous figures. Of the remaining 29 stats, 27 reflected a deterioration from previous.

For the Greenback, disappointing economic data and a dovish FED left the Dollar in the red. The Dollar Spot Index fell by 0.79% to 92.174. In the previous week, the Dollar had risen by 0.24% to 92.906.

Out of the U.S

Consumer sentiment and durable goods orders drew attention early in the week.

In June, durable goods orders ex transportation rose by 0.3%, following a 0.5% increase in May.

More significantly was a pickup in consumer confidence in July. The CB Consumer Confidence Index rose from 128.9 to 129.1. Economists had forecast a decline to 126.0.

On Thursday, jobless claims and 2nd quarter GDP numbers were in focus. The stats were skewed to the negative, however.

In the 2nd quarter, the U.S economy grew by 6.5%. This fell well short of a forecasted growth of 8.5%.

Jobless claims also fell short of expectations, with initial jobless claims falling from 424k to 400k. Economists had forecast a decline to 370k.

At the end of the week, personal spending and inflation figures came in ahead of forecasts, however.

Personal spending rose by 1.0% in June, with the annual rate of inflation seeing a pickup from 3.4% to 3.5%.

While the stats were material, the FED monetary policy and press conference were the main events of the week.

In line with market expectations, the FED left policy unchanged. The FED Chair also looked to assure the markets that there would be no near-term moves, the guidance considered dovish.

Out of the UK

It was a particularly quiet week. There were no major stats for the markets to consider in the week.

The lack of stats left the Pound in the hands of IMF economic growth forecasts, which delivered Pound support.

In the week, the Pound rose by 1.13% to end the week at $1.3904. In the week prior, the Pound had fallen by 0.14% to $1.3748.

The FTSE100 ended the week up by 0.07%, following a 0.28% gain from the previous week.

Out of the Eurozone

Through much of the week, the German economy was in focus.

Business and consumer sentiment figures delivered mixed results. While business sentiment waned in July, consumer confidence remained unchanged, in spite of the reopening of economies.

Unemployment figures from Germany were upbeat. The unemployment fell from 5.9% to 5.7% in July.

Inflationary pressures continued to surge, however, with Germany’s annual rate of inflation accelerating in July to 3.8%.

At the end of the week, 1st estimate GDP numbers and prelim inflation figures were the key stats of the week.

Quarter-on-quarter, the French economy grew by 0.9% versus a forecasted 0.7% in the 2nd quarter.

Germany saw growth of 1.5%, falling short of a forecasted 1.9%. In the 1st quarter, the economy had contracted by 2.1%.

For the Eurozone, the economy grew by 2.0%, coming in ahead of a forecasted 1.5%. The economy had contracted by 0.3% in the previous quarter.

Inflation also ticked up, aligned with member state numbers. According to prelim figures, the Eurozone’s annual rate of inflation accelerated from 1.9% to 2.2% in July, rising above the ECB’s 2% target.

For the week, the EUR rose by 0.84% to $1.1870. In the week prior, the EUR had fallen by 0.30% to $1.1771.

The DAX30 fell by 0.67%, while the CAC40 and the EuroStoxx600 ended the week up by 0.67% and by 0.05% respectively.

For the Loonie

It was a relatively quiet week on the economic data front.

Inflation and GDP numbers were the key stats of the week.

In June, the annual rate of inflation softened from 2.8% to 2.7%, bucking the trend seen across key economies.

The Canadian economy also continued to struggle in May, with the economy contracting by 0.3%. The economy had contracted by 0.5% in April.

In the week ending 30th July, the Loonie rose by 0.71% to C$1.2475. In the week prior, the Loonie had risen by 0.39% to C$1.2564.

Elsewhere

It was a mixed week for the Aussie Dollar and the Kiwi Dollar.

While the Aussie Dollar fell by 0.30% to $0.7344, the Kiwi Dollar ended the week flat at $0.6974.

For the Aussie Dollar

Inflation was the main area of focus. The stats were mixed, however, pegging the Aussie Dollar back.

In the 2nd quarter, the annual rate of inflation surged from 1.1% to 3.8%. The trimmed mean rate of inflation picked up from 1.1% to 1.6%, however.

Wholesale inflation also saw a pickup but at a softer pace than anticipated.

Australia’s annual wholesale rate of inflation ticked up from 0.2% to 2.2%. Economists had forecast a rate of 3.5%.

For the Kiwi Dollar

It was a busier week, with trade and consumer and business confidence in focus.

Trade data disappointed, with the trade surplus narrowing from NZ$498m to NZ$261m in June. The narrowing stemmed from a more marked increase in imports, however, rather than a fall exports, which limited the damage.

Business and consumer confidence figures were also skewed to the negative. The ANZ Business Confidence Index fell from -0.60 to -3.80, with the ANZ Consumer Confidence Index falling from 114 to 113.1.

The week numbers were not enough to sink the Kiwi.

For the Japanese Yen

It was another relatively busy week.

Early in the week, private sector PMIs were in focus. Later in the week industrial production and retail sales also drew attention on Friday.

While prelim private sector PMIs softened slightly in July, industrial production and retail sales impressed.

Industrial production jumped by 6.2% in June, reversing a 6.5% slide from May. More significantly, retail sales increased by 3.1%, reversing a 0.4% decline from May.

The Japanese Yen rose by 0.75% to ¥109.72 against the U.S Dollar. In the week prior, the Yen had fallen by 0.44% to ¥110.550.

Out of China

It was a quiet week on the economic data front. There were no major stats from China for the markets to consider.

In the week ending 30th July, the Chinese Yuan rose by 0.31% to CNY6.4614. In the week prior, the Yuan had ended the week down by 0.03% to CNY6.4813.

The CSI300 and the Hang Seng ended the week down by 4.98% and by 5.46% respectively.

S&P 500 Weekly Price Forecast – S&P 500 Continuing Upward Trajectory

S&P 500 traders have been bullish for quite some time, and even though this week has been a bit quiet, it should be noted that we did pierce the 4400 level, which of course is a relatively bullish sign. The same standard playbook applies to this market, simply that we should be buying dips as the Federal Reserve will continue to keep monetary policy very loose for the foreseeable future, the same thing they have been doing over the last 13 years since the Great Financial Crisis.

S&P 500 Video 02.08.21

There is a nice uptrend line underneath, and of course the 4200 level should offer support. After that, I see the 4000 level as the “floor the market” as there will be a lot of options barriers there, and of course is large, round, psychologically important figures tend to attract a lot of attention. Furthermore, we also have the 50 week EMA racing towards that area and of memory serves me correct, the 200 day EMA is currently sitting right around the same area as well.

To the upside, I think the 4500 level will offer a little bit of hesitation, as it is a big figure, but ultimately this pair does tend to move in 200 point increments, thereby having me target the 4600 level over the next several weeks. Keep in mind that August does tend to be very quiet so do not be surprised at all to see this more of a grind than anything else or even the possibility of a bit of sideways trading. Once September hits, traders come back to work and the momentum start picking up yet again.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Weekly Price Forecast – Crude Oil Continus to See Upward Pressure

WTI Crude Oil

The West Texas Intermediate Crude Oil market has initially pulled back during the week but found the $70 level to be supportive enough to turn things around and show signs of life again. By the end of the week, we have turned around completely to threaten the $74 level. After forming that massive hammer during last week, it is obvious that the buyers are stepping into pick this market up and as selling is all but impossible. (In fact, I would not be a seller until we break down through that hammer.) Because of this, I think it is only a matter of time before we break above the recent highs and go looking towards the $80 level as demand will continue to outstrip supply in the foreseeable future.

WTI Oil Video 02.08.21

Brent

Brent markets of course are going to be the same story and are much clearer to breaking out to the upside than the WTI grade is. In fact, I look at Brent as a bit of a leading indicator as it typically has a little bit of a premium attached to it anyway. If we can break out higher from a couple of weeks ago, as almost a certainty that we will go looking towards the $80 level and try to break above it. As for the downside, the $70 level looks to be massive support, followed by the $65 level as evident by the massive hammer that we had formed during the previous week. Nonetheless, pay close attention to the US dollar as it also has its say as to where we go quite often.

For a look at all of today’s economic events, check out our economic calendar.

Silver Weekly Price Forecast – Silver Markets Form a Hammer

Silver markets have pulled back a bit during the course of the week, but as you can see have turned around to form a bit of a hammer. The hammer sits right on top of the bottom of the overall uptrend line of the ascending triangle, so therefore I think it is only a matter of time before we rally. If the market can break above the top of the weekly candlestick, then it is likely that we break out to the upside, perhaps going towards the $28 level. On the other hand, if we break down below the candlestick, then it is likely that the market could break towards the $24 level, maybe even the $20 level on some type of selloff.

SILVER Video 02.08.21

Keep in mind that silver has a huge correlation to the industrial demand, but with Jerome Powell and the Federal Reserve suggesting that they are nowhere near tightening monetary policy, that could weaken the US dollar just enough to make the silver market go higher. Gold has really taken off, and perhaps will continue to drag silver along with it. Nonetheless, this is a market that is very difficult to risk manage, mainly because the cost involved per text.

Because of this, I would be very cautious about the position size, and only add to the position as the trade works out. Either way, it looks like we are probably going to get a significant move relatively soon. That being said, the market is likely to continue to see noisy behavior, but eventually I fully anticipate seeing some type of impulsive candlestick that we can follow right along with.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Weekly Price Forecast – Natural Gas Give Up Early Gains for the Week

Natural gas markets initially rally during the course of the week, breaking out well above the $4.00 level, only to sell off and breakdown. All things being equal, this is a market that I think will continue to see a lot of upward pressure over the longer term, but we are starting to see temperatures cool off a little bit in the United States, so that could drive down demand. Longer-term though, we still have the heat wave coming back and therefore I think buyers will return. This little bit of a pullback might be a nice opportunity to get involved at a better price, and that is how I plan on playing this market.

NATGAS Video 02.08.21

If we can break above the top of the candlestick from the week, then it allows the market to go much higher. At that point, the market is likely to go looking towards the $4.40 level. That is the measured move from the previous consolidation area and the bullish flag that shows up on the daily chart. With that being the case, I think it all the points to higher levels, but this little bit of a pullback should be a nice buying opportunity based upon value as it returns. It is not until we break down below the $3.40 level that I would be a seller of this market and at that point in time I would probably become rather aggressive. In general, this is a market that I believe continues to see upward momentum but given back some of the most recent impulsive move would not be a huge surprise.

For a look at all of today’s economic events, check out our economic calendar.

Gold Weekly Price Forecast – Gold Continues Same Pattern of Consolidation

Gold markets rallied a bit during the course of the week, but initially looked very soft as we were hanging about the $1790 level, an area that is significant support based upon action that we have seen over the last month or so. We then turned around as Jerome Powell and the Federal Reserve announced that they were nowhere near tapering, so therefore gold got a bit of a boost as the US dollar got smoked. Having said that, we did not break out quite yet, and simply test at the top of the range before pulling back on Friday. It will be interesting to see whether or not we can continue to go higher, but we have a very clear area that will be crucial.

Gold Price Predictions Video 02.08.21

If we can clear the $1830 level, then it is likely the gold continues to go much higher, perhaps trying to take that huge red wipeout candle out and go looking towards the $1910 level. On the other hand, if we turn around a break down below the $1790 level, that almost certainly will open up a move down to the $1750 level, followed very closely by the double bottom down at the $1680 level. With that being the case, it is very likely that it would come along with massive US dollar strength and a lot of fear-based trading.

Even though the gold market sometimes get a little bit of a boost when people are concerned, the reality is that the gold markets play second fiddle to the US dollar sometimes, and that will be especially true if we continue to see the yield in the United States drop as people will rush towards bond.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Weekly Price Forecast – Dollar Continues to Chop Back and Forth Against Yen

The US dollar has fallen hard against the Japanese yen during the course of the week to break down below the ¥110 level. Ultimately, this is a market that I think is essentially “stuck” in this general area, and therefore it is not a huge surprise that we are dancing around yet again. At this point, I do not necessarily think that we are going to make a big move in the short term, because we are heading into the month of August when things are typically very quiet. Most large traders will be thinking more about beaches than they will trading charts.

USD/JPY Video 02.08.21

At this point, there is a massive amount of resistance above where the ¥112 level has pushed this market back down every time, we have tried to approach that level over the last several years. Ultimately, this is a market that I think will continue to see a lot of noise in that area so therefore I think we break out. To the downside, I see the ¥108 level as a support level, and a potential target if we break down.

I anticipate that the next several candlesticks will be back and forth, and therefore it is probably more likely than not to be a scenario where we will be looking towards shorter time frames than anything else, as the range is relatively tight, and is going to be difficult to trade the range with these higher time frames. That being said, it does make for a nice well defined area that you can trade on either the daily or the four hour charts.

For a look at all of today’s economic events, check out our economic calendar.

GBP/USD Weekly Price Forecast – British Pound Continues to Look Strong

The British pound has rallied significantly during the course of the trading session to show signs of life again, as the market is more than likely going to try to move against the US dollar in one fell swoop. That being said, the 1.40 handle is an area that has been significant resistance in the past, so I would not be surprised at all to see a little bit of a pullback. If and when we can break above that 1.40 level though, then it is likely we go looking towards 1.42 handle, which is where we have seen a massive amount of resistance in the past. Ultimately, this is a market that I think will continue to see choppy behavior, and as we head into August, I think we will see a little less in the way of momentum.

GBP/USD Video 02.08.21

When you look at the 1.42 handle, it is an area that has been like a brick wall for several years, and I think breaking above there would make this market a longer-term “buy-and-hold” type of situation. I do not necessarily see that happening easily, and I do not necessarily see that happening in the next week or two. I think this is more or less going to be a bit of a grind higher, especially as we head into what is traditionally one of the quietest times of the year.

That being said, if we pull back it is likely that we will go looking towards the 1.37 handle underneath, where we launched from earlier this week. Ultimately, this is a market that needs to make up its mind for a bigger move.

For a look at all of today’s economic events, check out our economic calendar.

GBP/JPY Weekly Price Forecast – British Pound Continues to Rally Against Yen

The British pound has initially pulled back a bit during the course of the week but then turned around a break above the ¥153 level. That being the case, it looks as if the market is going to try to continue to grind higher, but keep in mind that this pair is highly sensitive to the risk appetite of markets around the world, so pay close attention to how stock markets behave, as well as other things along the lines of commodities. That being said, the British pound of course is considered to be a currency that people buying good times, while the Japanese yen is considered to be a massive safety currency.

GBP/JPY Video 02.08.21

If we can break above the top of this weekly candlestick, then it is likely we go looking towards the ¥155 level, which was the most recent high. It is also an area where we see a significant amount of resistance at over the months and years pass. On the other hand, if we pull back from here we could go looking towards the ¥150 level, which I think would be massive support and thereby breaking down below the candlestick from the previous week which was the hammer would open up massive selling, perhaps reaching down to the ¥145 level, maybe even as low as the ¥140 level, as I believe that a break down below the hammer from the previous week would of course represent some type of shock to the system and therefore I think the reaction could be rather nasty as it would be a safety trade all across-the-board in my estimation.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Weekly Price Forecast – Euro Wipes Out Significant Losses

The Euro has rallied rather significantly during the course of the week, as we have seen the market recapture the 1.1850 level, and even threatening the 1.19 level late during the week. When you look at this chart, it is obvious that there are a lot of choppy little areas around where we are, and the fact that the Friday candlestick is starting to look like a shooting star does suggest that maybe we get a little bit of a pullback. That being said, it looks as if the Euro is trying to find its footing, so while I anticipate that we are going to go sideways more than anything else in the short term, it is likely that we will make a significant move rather soon.

EUR/USD Video 02.08.21

Looking at this chart, you can see that if we were to break down below the weekly candlestick, we could go looking towards the 1.16 level underneath which is where the 200 week EMA comes into the picture. That is an area where we see significant support coming into the market that extends down to the 1.15 handle. As far as going long is concerned, you need to see this market clear the 1.20 handle in order to have this market really take off to the upside. At that point, then we are looking towards the 1.22 handle.

That is an area that of course is massive resistance as well, so please be advised that it is worth paying close attention to. Keep in mind that a lot of what is going on in this pair in both the US dollar more than anything else, so I do not believe that you can ignore the 10 year note either.

For a look at all of today’s economic events, check out our economic calendar.

AUD/USD Weekly Price Forecast – Australian Dollar Looking for Support

The Australian dollar has gone back and forth during the course of the week to show a little bit of hesitation with the negativity. If we can break down below the hammer from the previous week, then it is very likely that we go towards the 0.70 level, an area that I do think is a very real possibility as Australia continues to lock down its economy. This could send Australia into a “double dip recession”, which of course will cause major issues for the currency and of course the overall economic health of Australia.

AUD/USD Video 02.08.21

Furthermore, we are starting to see issues with the Chinese economy and therefore the Australians may suffer at the hands of that as well. The economic numbers in China have been less than impressive lately, so ultimately this is a market that I think will suffer. If we bounce from here, then it is likely that the 0.75 level above is going to be a significant resistance barrier based upon the previous action that we had seen and of course the fact that it is a large, round, psychologically significant figure.

One thing is for sure, this is a market that will continue to be very choppy and difficult to say the least, so with that being the case it is possible that the market is one that you are going to have to be very patient with, but it should eventually give us one of the signals to get short. On the other hand, if we were to take out the 0.76 level, then it is likely that the market would go looking towards the 0.78 handle.

For a look at all of today’s economic events, check out our economic calendar.

Gold, USDX: Did Powell Spoil the Party?

The War on Debt

With Jerome Powell, Chairman of the U.S. Federal Reserve (FED), struggling to adequately define “transitory” during his press conference on Jul. 28, the market narrative has shifted from ‘hawkish FED’ to ‘dovish FED.’ And with the U.S. dollar bearing the brunt of investors’ wrath, the ‘all-clear’ sign flashed in front of the PMs. However, with post-FED rallies mainstays in the PMs’ historical record, the recent euphoria is much more semblance than substance. Thus, while Powell’s persistent patience elicits fears of financial repression, today’s economic environment lacks many of the qualities that made the gambit viable in the past.

To explain, financial repression includes measures such as direct government financing (the FED prints money and lends it directly to the U.S. Treasury), interest rate caps (yield curve control) and extensive oversight of commercial banks (reserve requirements, controlling the flow of credit). In a nutshell: governments use the strategy to keep interest rates low and ensure that they can finance their debt. And with the U.S. federal debt as a percentage of GDP currently at 128% (updated on Jul. 29), some argue that’s exactly what’s happening. Moreover, with the U.S. 10-Year real yield hitting an all-time low of -1.15% on Jul. 28, is the FED simply turning back the clock to the 1940s?

To explain, during World War Two, surging inflation helped the U.S. government ‘inflate away’ its debt. Think of it like this: if an individual borrows $100 at a 2% interest rate and repays the balance in full after one year, the total outlay is $102. However, if inflation is running at 4% (negative real yield), putting that money to work should result in an asset that’s worth $104 by the end of the year. As a result, the individual nets $2 (104 – 102) due to the inflation rate exceeding the nominal interest rate. And as it relates to the present situation, if the FED keeps real yields negative, then asset price inflation and economic growth should outpace nominal interest rates and allow the U.S. government to ‘inflate away’ its debt.

However, the strategy is not without fault. For one, financial repression occurs at the expense of bondholders. And with pension funds still required to meet the guaranteed outlays for retirees, suppressing bond yields hampers their ability to match assets and liabilities without incurring more risk.

More importantly, though, the FED doesn’t control the long end of the U.S. yield curve. For one, the FED owns roughly 23% of the U.S. Treasury market, and it has a monopoly on confidence, not long-term interest rates. Second, the U.S. 10-Year Treasury yield has dropped because investors fear that the Delta variant and/or the FED’s forthcoming taper will depress the U.S. economy. And eager to front-run the potential outcome, bond investors have positioned for slower growth, lower inflation, and, eventually, a reenactment of the FED cutting interest rates.

For context, even Powell himself admitted on Jul. 28 that the decline has caught him off-guard:

Source: Bloomberg

Likewise, following WW2, the U.S. government implemented structural reforms that are not present today. For example, prudent fiscal policy emerged in the late 1940s, with the government reducing spending and prioritizing debt reduction. In stark contrast, today’s U.S. government is already finalizing an infrastructure package and the federal deficit as a percentage of GDP is still growing. For context, a deficit occurs when the governments’ outlays (expenditures) exceed its tax receipts (revenues).

Please see below:

To explain, the green line above tracks the U.S. federal surplus/deficit as a percentage of GDP. If you focus on the period from 1943 to 1950, you can see that after the deficit peaked in 1943, reduced spending and strong GDP growth allowed the green line to move sharply higher. Conversely, if you analyze the right side of the chart, you can see that current spending still outpaces GDP growth (green line moving lower), and stoking inflation is unlikely to solve the problem.

U.S. 10-Year Treasury Yield Decouples… By a Lot

Circling back to the bond market, the U.S. 10-Year Treasury yield currently trades at an all-time low relative to realized inflation.

Please see below:

To explain, the scatterplot above depicts the relationship between the headline Consumer Price Index (CPI) and the U.S. 10-Year Treasury yield (available data dates back to 1967). For context, the headline CPI is plotted on the horizontal axis, while the U.S. 10-Year Treasury yield is plotted on the vertical axis. If you analyze the dot labeled “Current Reading,” you can see that the U.S. 10-Year Treasury yield has never been lower when the headline CPI has risen by 5% or more year-over-year (YoY). In fact, even if the headline CPI declined to the FED’s 2% YoY target, the U.S. 10-Year Treasury yield at 1.27% would still be the lowest relative reading of all time.

However, it’s important to remember that different paths can still lead to the same destination. For example, if inflation turns out to be a paper tiger, a profound decline in inflation expectations will have the same negative impact on the PMs as a sharp rise in the U.S. 10-Year Treasury yield.

Please see below:

To explain, the green line above tracks the U.S. 10-Year Treasury yield, while the red line above tracks the U.S. 10-Year breakeven inflation rate. If you analyze the gap on the right side of the chart, it’s a decoupling of the ages. However, while the two lines are destined to reconnect at some point, if the red line falls off a cliff, the impact on the PMs will likely mirror the 2013 taper tantrum. For context, gold fell by more than $500 in less than six months during the event.

Finally, and most importantly, U.S. Treasury yields are only one piece of the PMs’ bearish puzzle. Knowing that one shouldn’t put all their eggs in one basket, betting the farm on the U.S. 10-Year Treasury yield would be investing malpractice. That’s why self-similar patterns, ratios, technical indicators, the relative behavior of the gold miners, the USD Index and the FED’s taper timeline are all prudently considered when forming our investment thesis.

As an example, if gold had a perfect correlation with the U.S. 10-Year real yield, the yellow metal would be trading at roughly $1,940. However, with many other factors worthy of our attention, gold’s material underperformance indicates that a mosaic of headwinds undermines its medium-term outlook.

In conclusion, Powell’s party was in full swing on Jul. 29, as the PMs and the USD Index headed in opposite directions. However, with the yellow metal still confronted with a tough road ahead, the fundamental outlook remains dicey over the next few months. For example, with the all-time imbalance in the U.S. Treasury market eliciting little optimism, it took Powell’s dovish remarks to ignite the recent fervor. And with both developments likely to reverse in the coming months, the PMs’ upside catalysts may fade with the summer sun.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Behavior of Inflation and Bond Yields Seems… Contradictory

The markets hide many mysteries. One of them is the recent slide in the long-term bond yields. As the chart below shows, both the nominal interest rates and the real interest rates have been in a downside trend since March (with a short-lived rebound in June). Indeed, the 10-year Treasury yield reached almost 1.75% at the end of March, and by July it decreased to about 1.25%, while the inflation-adjusted yield dropped from -0.63% to about -1%.

What’s intriguing, this drop happened despite the surge in inflation. As you can see in the chart below, the seasonally adjusted annual CPI inflation rate surged to 5.3% in June, the highest level since the Great Recession. Even as inflation soared, the bond yields declined.

Why is that? Are bond traders blind? Don’t they see that the real interest rates are deeply negative? Indeed, the TIPS yields are the lowest in the history of the series (which began in 2003), while the difference between the nominal 10-year Treasury yields and the CPI annual rates is the lowest since June 1980, as the chart below shows.

The pundits say that the decline in the bond yields suggests that inflation will only be temporary and there is nothing to worry about. This is what the central bankers repeat and what investors believe. However, history teaches us that the bond market often lags behind inflation, allowing the real interest rates to plunge. This happened, for example, in the 1970s (see the chart above), when the bond market was clearly surprised by stagflation.

Another issue here is that the central banks heavily influence the bond markets through manipulation of interest rates and quantitative easing, preventing them from properly reacting to inflation. Actually, some analysts say that the bond market is the most manipulated market in the world. So, it doesn’t have to predict inflation properly.

Implications for Gold

What does the divergence between the bond yields and inflation imply for gold? Well, as an economist, I’m tempted to say “it depends”. You see, if inflation is really temporary, it will start declining later this year, making the real interest rates rise. In that case, gold would suffer (unless inflation decreases together with the pace of economic growth).

It might also be the case that the divergence will narrow as a result of the increase in the nominal interest rates. Such a move would boost the real interest rates and create downward pressure on gold.

However, if inflation turns out to be more persistent than expected, investors will fear an inflation tail risk, and they will be more eager to buy gold as an inflation hedge. As I’ve explained, the decline in the bond yields doesn’t have to mean low inflation expectations. It may also indicate expectations of slower economic growth. Combined with high inflation, it would imply stagflation, a pleasant environment for gold.

Another bullish argument for gold is the observation that the price of gold has recently lagged the drop in the real interest rates, as the chart below shows. So, it might be somewhat undervalued from the fundamental point of view.

However, given the upcoming Fed’s tightening cycle and the record low level of real interest rates, I would bet that the above-mentioned rates will increase later this year, which should send gold prices lower. But if they rise too much, it could make the markets worry about excessive indebtedness and release some recessionary forces. Then, the current reflation could transform into stagflation, making gold shine. So, gold could decline before it rallies again.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care

 

USDX: More Sideways Trading Ahead?

Yesterday’s (Jul. 27) supposedly big news was the breakdown below the neck level of the inverse head-and-shoulders pattern in the USD Index. Invalidations of breakouts are bearish, and what’s bearish for the USDX is usually bullish for gold, silver, and mining stocks. So, what happened? And what didn’t happen?

What happened was that the USD Index moved a bit below the declining neckline based on the previous intraday highs.

What didn’t happen was the move below the declining neckline based on the previous highs in terms of daily closing prices (dashed line).

So, was the breakout really invalidated? Not necessarily, especially that the USDX is moving back up in today’s pre-market trading (at least at the moment of writing these words).

Moreover, while the USD Index moved lower yesterday, gold refused to rally.

To be precise, it did move higher, but only by $0.60, so it generally ignored the USD’s movement.

Consequently, yesterday’s session might have seemed to be a game-changer at first sight, but it seems much more likely that it wasn’t one. In my view, yesterday’s price movement was the continuation of the back-and-forth trading that’s analogous to what we saw in the first half of June. Gold was moving back and forth in a boring manner then too. The boredom was over quite quickly and a big short-term slide followed – I think the same is likely to happen shortly.

Gold Miners’ Aid

Mining stocks’ performance also supports this scenario.

If it was the beginning of another sizable move higher in the PMs and miners, the latter would be likely to show strength before gold. And that’s not taking place.

Senior gold miners were practically flat yesterday, just as gold was – that is, only slightly higher. On the other hand, junior gold miners ended the session slightly lower – very close to their previous 2021 lows.

Junior miners (the GDXJ ETF) haven’t invalidated the breakdown below the neck level of the bearish head and shoulders formation. Consequently, the very bearish implications of the breakdown remain intact.

All in all, the precious metals sector seems poised for another move lower, quite likely to the previous yearly lows in the case of gold and well below the previous 2021 lows in the case of the mining stocks. Yesterday’s decline in the USD index doesn’t change that. To clarify, the above-mentioned targets will most likely be just interim stops within an even bigger decline that will get us to the ultimate buying opportunity for the PMs and miners later this year.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

ECB Turns Even More Dovish. Breakthrough for Gold?

The European Central Bank held its monetary policy meeting last week. It was an important event, as it was the first meeting since the adoption of the new ECB’s strategy, and as the ECB has introduced some changes. It left the interest rates unchanged, but it modified its forward guidance.

Long story short, the ECB announced that it would keep its policy rates at ultra-low levels for even longer than previously pledged, as it doesn’t want to tighten prematurely:

In support of our symmetric two per cent inflation target and in line with our monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until we see inflation reaching two per cent well ahead of the end of our projection horizon and durably for the rest of the projection horizon, and we judge that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.

Previously, the ECB maintained that it would keep the interest rates unchanged until inflation expectations converge with the central bank’s target. The change implies that the ECB is unlikely to raise the interest rates until at least 2023, as this is when the projection horizon ends. Central bankers want inflation to be stable at the target, and they won’t hike without tapering quantitative easing earlier.

Additionally, the ECB has decided to keep the pace of its asset purchases under the Pandemic Emergency Purchase Programme at the current (faster than it was originated) pace over the third quarter of 2021:

Having confirmed its June assessment of financing conditions and the inflation outlook, the Governing Council continues to expect purchases under the pandemic emergency purchase programme (PEPP) over the current quarter to be conducted at a significantly higher pace than during the first months of the year.

So, the ECB’s monetary policy has become even more accommodative. The alteration could be explained by two factors: the ECB’s new strategy and the Delta variant of the coronavirus. But the real reason is, of course, protecting the European government from the market interest rates – however, this is a topic for another discussion.

I have covered both of the ‘official’ factors recently, warning my readers that the change in the strategy implies that the ECB has adopted an even more dovish stance and that the spread of Delta could prompt the central banks to further loosen their stance. This is exactly what has happened – as Christine Lagarde pointed out during her press conference:

The recovery in the euro area economy is on track. More and more people are getting vaccinated, and lockdown restrictions have been eased in most euro area countries. But the pandemic continues to cast a shadow, especially as the delta variant constitutes a growing source of uncertainty.

Implications for Gold

What does the change in the ECB’s monetary policy imply for the gold market? Well, one could say that more dovish central banks are positive for gold, which likes the environment of low interest rates and bond yields.

However, economics is about relative values. So, from the point of view of the comparative analysis, the ECB’s dovish shift is bad news for the yellow metal. This is why the Fed looks hawkish in comparison to the ECB, its main counterparty, so it will be interesting to see what they say tomorrow after their monetary policy meeting. After all, the Fed has actually started talking about tapering and monetary policy normalization, while the ECB has just announced that it would keep its quantitative easing at an elevated pace and would maintain its ultra-low interest rates for even longer.

Hence, the greenback appreciated relative to the euro after the ECB’s monetary policy meeting. Although a stronger dollar creates downward pressure on the yellow metal, the price of gold barely moved and is still trading around $1,800, as the chart below shows.

However, there is a silver lining here. Some market participants were actually disappointed that the ECB didn’t provide a stronger adjustment. Indeed, no monetary bazookas this time. Moreover, the ECB’s decision was not unanimous, so there is some sort of a hawkish camp. Last but not least, it might be the case that the Fed will also loosen its stance if the Delta variant spreads in a dangerous way. Having said that, the divergence in monetary policy and interest rates across the pond should be a headwind for gold prices for a while.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care

 

USDX Defends Its Growth Thesis – Will It Pass With Honors?

The USD Index (USDX)

With investors putting the USD Index through a rigorous exam last week (ending Jul. 23), months of study helped the greenback pass the test with flying colors. Case in point: with the USD Index rising above the neckline of its inverse (bullish) head & shoulders pattern, the head implies a medium-term target of roughly 98. On top of that, with the USD Index’s textbook validation adding to the bullish momentum last week – with the greenback verifying its recent breakout and responding with further strength – the U.S. dollar is likely to graduate with honors in the coming months.

What’s more, the bullish breakout was further validated when the USD Index closed the week above the neck level of its H&S pattern, and it’s difficult to imagine a more sanguine sign for the U.S. dollar. Thus, with the greenback poised to move sharply higher in the coming weeks, gold, silver and mining stocks are likely to head in the opposite direction.

In addition, the USD Index often sizzles in the summer sun. To explain, major USDX rallies often start during the middle of the year, and with the dollar’s bullish IQ often rising with the temperature, gold, silver and mining stocks will likely feel the heat over the medium term.

If you analyze the chart below, you can see that summertime surges have been mainstays on the USD Index’s historical record and double bottoms often signal the end of major declines or ignite significant rallies. For example, in 2004, 2005, 2008, 2011, 2014 and 2018, a retest of the lows (or close to them) occurred before the USD Index began its upward flights. In addition, back in 2008, U.S. equities’ plight added even more wind to the USD Index’s sails. And if the general stock market suffers another profound decline (along with gold miners and silver), a sharp re-rating of the USDX is likely in the cards.

Please see below (quick reminder: you can click on the chart to enlarge it):

On top of that, the eye in the sky doesn’t lie. And with the USDX’s long-term breakout clearly visible, the smart money is already backing the greenback.

Please see below:

As further evidence, the latest Commitments of Traders (COT) report shows that non-commercial (speculative) futures traders have increased their long exposure to the U.S. dollar (the light blue line below). More importantly, though, with longs bouncing off a roughly 10-year low and the current positioning still well below the highs set in previous years, the U.S. dollar still has plenty of room to run.

Source: COT

Finally, as the polar opposite of the USD Index, the Euro Index’s recent symmetrical decline mirrors the drawdown that we witnessed in mid-2020. And while the breakdown below the neckline of its bearish head & shoulders pattern still requires further verification, a continuation of the trend could usher the index back to the June 2020 lows or even lower. For context, the EUR/USD accounts for nearly 58% of the movement of the USD Index.

In addition, when the Euro Index reached the neckline of its bearish H&S pattern in early April 2021, late September 2020, and late October 2020, a fierce rally ensued. However, this time around, the corrective upswing has been extremely weak. As a result, with lower highs and lower lows plaguing the Euro Index in recent weeks, it’s likely only a matter of time before the neckline officially breaks.

Please see below:

Even more relevant, the completion of the masterpiece could have a profound impact on gold, silver and mining stocks. To explain, gold continues to underperform the euro. If you analyze the bottom half of the chart above, you can see that material upswings in the Euro Index have resulted in diminishing marginal returns for the yellow metal. Thus, the relative weakness is an ominous sign. That’s another point for the bearish price prediction for gold.

The bottom line?

Once the momentum unfolds, ~94.5 is likely the USD Index’s first stop, ~98 is likely the next stop, and the USDX will likely exceed 100 at some point over the medium or long term. Keep in mind though: we’re not bullish on the greenback because of the U.S.’ absolute outperformance. It’s because the region is fundamentally outperforming the Eurozone, and the relative performance is what really matters.

In conclusion, the USD Index will likely emerge victorious in this epic battle of wits. Moreover, with the GDXJ ETF (our short position) avoiding mirroring gold’s recent strength, it seems that when the USDX finally does rally profoundly, junior mining stocks will fall substantially. However, following a profound climax, gold, silver and mining stocks will likely resume their secular uptrends.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One?

Our followers and readers have been emailing us asking for more research into Precious Metals and updated Adaptive Dynamic Learning (ADL) Price Modeling charts (our proprietary price/technical mapping system capable of predicting future trends, setups, and price levels). This special Gold and Silver research article will help you learn what to expect over the next 24+ months and where opportunities exist in Gold and Silver trends.

Longer-term support in Gold likely to act as an upward sloping price floor over the next 24+ months

There are two key upward sloping trend lines we want to focus your attention on, on this Monthly Gold chart, below. The first, the YELLOW trend line, originates from the 2009 bottom from the Housing Crisis. The important thing to remember at this time was that the US markets were in the midst of a broad market Depreciation Cycle that started in 2001-02 and ended in 2010. The rally that was taking place before the 2000 Depreciation Cycle started was a reactionary upside price trend resulting from the end of the DOT COM bubble and the post 911 terrorist attacks. The US entered a war that pushed fear levels higher – resulting in a transitional shift in how Gold was perceived at that time.

The YELLOW trend line acts as key market support resulting in a Wave 1 & Wave 2 setup. Gold is currently rallying into a Wave 3 rally phase which my team and I believe will prompt two unique rally peaks over the next 24+months. The first with a high price near $2400 and a second with a high price near $2775. The first upward price wave will likely peak near the end of 2021 or in early 2022 and the second upward price wave will likely peak near Q3/Q4 of 2022.

The second upward sloping price trend line is more aggressively trending and will likely act as an immediate price floor over the next 24+ months. In other words, we expect this more aggressive CYAN trend line to continue to act as an immediate price support level pushing the next two price waves upward to our targets levels.

I’ve drawn the two expected upward price waves on this chart in GREEN Arrows. Remember, this is a Monthly Gold price chart, so each of these price waves represents 4 to 6+ months of time.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/Chart_21-07-23_Gold_M.png

Gold Quarterly Adaptive Dynamic Learning Chart – Looking For $2500+

Our proprietary Adaptive Dynamic Learning price modeling system is showing a very clear upward arcing price advance in Gold on this Quarterly chart. It is clear to see Gold should rally into the end of 2021, reaching highs above $2100~2200 before the start of 2022, then continue to rally above $2200 into 2022. At this point, Gold will likely attempt a rally above $2400 before stalling out between $2400~$2500 near the end of 2022. This next downward price correction, after the peak, will attempt to retest the YELLOW support channel on this chart – which is very similar to the CYAN price trend line on the chart above.

The next secondary peak in Gold will likely happen in 2023. The condensed nature of this second price rally in Gold suggests the peak near $2400 may complete a minor upward wave, part of the broader upward Wave 3 structure setting up now, and prompt a minor retracement to levels near $1900 before moving higher after 2023. So, Gold traders have two to four really nice price trends setting up over the next 24+ months.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/Chart_21-07-23_GC_Q_ADL.png

Silver Quarterly Adaptive Dynamic Learning Chart – Looking For $50+

This Silver ADL Monthly price chart highlights a very big trend that is setting up where Silver may rally above $40 to $50 near the end of 2021 or in early 2022 before moving into a sideways price consolidation phase – eventually settling near $30 to $35 in 2023~24.

What we find interesting about this ADL predictive chart is that Silver has continued to advance faster than gold over quite an extended period of time and is actually holding up a momentum/base level better than Gold over the past 8+ months. It is our belief that Silver will start to rally above $35 in Q3/Q4 2021 and may target levels above $40 before the end of 2021. The peak in Silver may happen near the end of 2021 or in early 2022, and we want to warn you that a peak level above $50 is very possibly on a washout peak type of rally.

Eventually, though, Silver will retrace back to levels near $30 to $35 and settled into another sideways price trend near the end of 2022 and throughout 2023. So, this presents another extended sideways price channel phase where Silver traders can load up on Silver while it settles into this channel before the next big rally phase.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/Chart_21-07-23_SI_Q_ADL.png

The lack of secondary price rally in Silver, as we saw in the ADL data for Gold, suggests the secondary Gold rally phase may be very short-lived and condensed.

Either way, my team and I believe the precious metals sector is primed and ready for this next upward price trend. To help you understand the timing of these events, the bit breakout rally in Silver does not start until near the end of 2021 and carries into Q1/Q2 of 2022.

The big rally in Gold will likely start in Q3/Q4 2021 and last throughout 2022 and into Q1/Q2 2023. So, based on the ADL price modeling system’s suggestions, Silver may enter an explosive price rally phase – overshooting true market boundaries, while Gold enters a more sustained and realistic price rally to levels above $2200 over the next 6 to 8+ months. Silver will peak and begin to consolidate lower while Gold holds above $2000 and continues to trend moderately higher in two separate advancing phases.

Remember, our Appreciation/Depreciation cycle phase research suggests the new Depreciation cycle phase started in 2019 and will last until 2027~2028. That means Silver and Gold will likely continue to experience multiple upward price cycle phases (advances) well into 2029~2030 before finding an ultimate peak level. We still have a long way to go before this rally in precious metals peaks.

More than ever, right now, traders need to move away from risk functions and start using common sense. There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies. Don’t let yourself get caught in these next cycle phases unprepared.

Want to know how our BAN strategy is identifying and ranking various sectors and ETFs for the best possible opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my new initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire kids to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many kids as possible!

For a look at all of today’s economic events, check out our economic calendar.

Have a great day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com