Here are my discretionary thoughts on forex and commodities. I only trade the S&P 500.
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- The U.S. dollar still needs a big trigger to break down.
- China is speeding up the bull market in gold, bear market in USD, and bear market in bonds.
4 pm: The USD still needs a trigger to break down.
The USD still can’t immediately breakdown from its support level (91), despite today’s bearish news.
The USD needs a big trigger if it is to breakdown. That trigger will most likely be the end of Merkel’s talks. By the end of this week, we’ll know if Merkel can form a grand coalition or a minority government. Either way, political uncertainty in Germany (the heart of the Euro) will end soon.
The USD’s decline and Euro’s rally stopped when Merkel’s election results on September 24 were poor. I think the USD’s decline will continue once this uncertainty disappears.
7 am: China is speeding everything up
Last month I wrote a post about China’s plan to slowly destroy the U.S. dollar’s importance in this world. Essentially, China needs to do 3 things:
- Dump its U.S. Treasury holdings to raise cash.
- Use to cash to buy gold.
- Establish a PetroYuan (alternative to the PetroDollar) that’s backed by the gold standard.
Today’s news just came in: China may halt purchases of U.S. Treasuries. This is a multi-decade shift in China’s policy as China shifts from buying Treasuries to buying commodities.
In other words, China is pushing ahead with its timetable than a faster rate than it initially planned to. This is why the U.S. dollar has been much weaker and why gold has been much stronger than I initially expected. (I initially expected the USD to tank and gold to surge in the 2nd half of 2018, not the first half of 2018).
- Stocks dropped immediately on this news.
- Gold and interest rates went up on this news (bond prices fell).
- The U.S. dollar fell on this news.
Price action is completely normal and bullish for gold, bearish for the USD.
The only risk to gold’s rally right now is a 6%+ S&P 500 correction. Regardless, I now believe that the USD will break down below its final 91 support and gold/silver will surge in the first half of 2018. China’s impact on the financial markets is not to be underestimated.
Over the next few months, we should see:
- China dump U.S. Treasuries for cash.
- Increased purchases of gold and oil.
- A decline in the U.S. dollar.
China doesn’t release real-time data on its gold and oil purchases. Fortunately, price action will tell us all we need to know. We now know the driver for this bull market in gold. It’s China.
I only trade stocks. These are just my thoughts/outlook on other markets.
- Gold and silver will break above their tight range in the first half of 2018.
- The USD Index will crater below its final support (90-91) in the first half of 2018.
- The best traders I know are still bullish on Bitcoin in the short and long term. I agree with them only to the extent that this bubble has a few months left. See “the pigs are flying” in this post.