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USDollar: Get Ready For Its Impact Across Markets

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Posted by Drew Zimmerman

on Tuesday, 30 January 2018 06:15

The USD was the talk of the town this week, if you were in Davos that is. Treasury Secretary Mnuchin gave a “weak dollar” statement that the market jumped on, pushing the USD index down to lows we haven’t seen since the end of 2014. Trump has since tried to “walk back” the statement saying they USD is based on the strength of the economy and will therefore get much, much stronger. Trumps headline was enough to push the USD a full point higher before it faded again on Friday.

So what did we learn from the USD action this week? 1) Get ready for a little more volatility this year. I think that means in the amount of “chop” and the willingness for trends to persist. 2) Momentum is like a train, it is a lot easier to jump on than stand in front of. Even with the President out to talk up the USD, it is finishing the weak on a soft note. The USD is now down for its 5th quarter in a row, 3rd month in a row and 6th week in a row. It has been very weak. Given that so many markets are priced in, or looked at relative to the USD we have seen this impact across markets.

The key date on this USD move is the middle of December in which I can look across markets and see that they started to diverge from what I call their typical “drivers” or what moves that particular market. And from that date the one common theme is that many markets have had the majority of their moves from that date because of excessive weakness in the USD. I had originally attributed this divergence to light holiday, however when it became more exacerbated through the start of this year I had to spend more time looking around for a better reason.  David Rosenberg argued that the Fed meeting mid-December was when Yellen gave the “green light” to markets in her final Fed Chair press conference. Since we have had a weak USD (no Fed tightness??), strong commodities and a very strong stock market (up over 8% from mid Dec!). So while this wasn’t as implicit as the Bernanke Put, the market seems to have gotten the message.

So with the momentum surging across markets, do we have a catalyst for a turn? We have a Fed meeting this week on the 30-31st, but as it is Yellen’s last meeting and only a FOMC statement, not much is expected. However, as this is the end of the Yellen era, will we start to see a different tone out of the Fed? What if we start to see Jay Powell offer a different view from what Yellen has been saying?? Especially with speed of the recent market moves.

The trader in me thinks that this USD move is overdone and therefore many other markets that are “far off” their regular drivers are also mispriced. But this is in piano catching territory, so it makes sense to be patient!

65

CAD: while much higher than I think it should be, it is has also lagged behind many other currencies during this USD weakness. While NAFTA could be a key component of this, even the Mexican peso has outperformed CAD over the last several weeks. My view is that the Bank of Canada will be hold longer than the market is currently pricing in, especially after watching recent Poloz comments about the incremental interest rate hikes becoming more burdensome for indebted Canadians. The perception of this longer pause in rate hikes is also showing up in the interest rate spreads against the US. Oil prices have jumped higher with a weak USD, but the rise to $66 WTI has been “numbed” for CAD due to an over $28 discount for Western Canada Select, Canada’s oil benchmark. So given that I think the USD is oversold, I wanted to take a position in the weakest currency in the pack, it tends to be slightly less risky to go after the laggard rather than expecting a big move from the currency that is the strongest. I have initiated a small position short CAD this week after Mnuchin’s comments.

Interest Rates: While the USD has grabbed the headlines, US interest rates have continued to move higher with the US 10yr closing the week at 2.65% up over 30bps from the mid-December level. In my view the US 10yr is all about the run to 3%, will it get there?? Will it move through it? I think it will be this move in interest rates that finally pressures stock market prices, whether the rate rise is from the Fed or market driven. I'm continuing to hold my short position in 10yr treasuries. 

Gold: Given the recent rise in interest rates and muted inflation picture, the rise in real rates is telling me that Gold should be trading much lower than it is right now. However, the excessive weakness of the USD has driven the momentum higher in the gold. But I think gold is set up for a scenario is which it is very vulnerable to any USD strength. There are some trade tensions mounting, however the current geopolitical picture does not justify the current excessive bid in gold.

PI Financial Corp. is a Member of the Canadian Investor Protection Fund. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. In considering whether to trade or the authorize someone else to trade for you, you should be aware of the following. If you purchase a commodity option you may sustain a total loss of the premium and of all transaction costs. If you purchase or sell a commodity futures contract or sell a commodity option  or engage in off-exchange foreign currency trading you may sustain a total loss of the initial margin funds or security deposit and any additional fund that you deposit with your broker to establish or maintain your position.  You may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position.  If you do not provide the requested funds within the prescribe time, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult to impossible to liquidate a position. This is intended for distribution in those jurisdictions where PI Financial Corp. is registered as an advisor or a dealer in securities and/or futures and options. Any distribution or dissemination of this in any other jurisdiction is strictly prohibited. Past performance is not necessarily indicative of future results



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Currency

Gold & Silver Major Breakout Alert as Dollar Crumbles

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Posted by Clive Maund

on Friday, 26 January 2018 06:07

Today has been momentous because the dollar has finally broken down from its giant 3-year long Broadening Top pattern, and fundamental developments suggest that it will continue to weaken, and since it has now broken down decisively, the rate is decline is likely to accelerate. These fundamental developments include the imposition of tariffs, long proven to be self-defeating and economically destructive, which invite retaliation and will slow the global economy, and the administration stating that it wants to see a weaker dollar as a means of increasing competitive advantage, which again will invite a "beggar thy neighbor" response from other powers. 

Thus the underpinnings of the stock market rally are being kicked away. The outlook for the dollar is now grim, but on the other hand the outlook for gold and silver could not be better, and they are now limbering up to break out of their giant Head-and-Shoulders patterns, and once they do will enter a vigorous bull market. Gold and silver stocks will soar when that happens, because after years of tough conditions, producing mining companies are slimmed down and efficient and rises in metal prices will go straight down to their bottom lines. 

usd4year240118

For my subscribers, on Jan. 13, I presented 49 of the best gold and silver stocks for the imminent precious metals sector bull market. In the environment that we will soon be moving into you will basically be able to "throw darts" and pick winners in this sector, while most of the rest of the stock market goes into meltdown.

As we can see below, gold is now in position to break out of its giant base pattern that has taken almost five years to build out. The talk about it being suppressed by manipulation is largely "sour grapes"—the plain fact of the matter is that versatile investors were partying elsewhere, in the broad market, the FANGS, Bitcoin and Cryptos, etc., most of which will soon hit a wall. 



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Currency

The (Suddenly Weak) Dollar Is Back In The Spotlight

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Posted by John Rubino - Dollarcollapse.com

on Thursday, 25 January 2018 08:40

For the past few years the “strong dollar” has been so central to the global financial story – enabling ever-lower interest rates and ever-higher financial asset prices pretty much everywhere – that it’s easy to forget how illusory “strength” is for fiat currencies. 

Since mid-2017 that illusion has been evaporating, as the dollar falls (both against other fiat currencies and assets like oil, bitcoin, tech stocks and gold) and interest rates rise. 

USDX-Jan-18



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Currency

Bitcoin Market Crashing: Is this the end of Bitcoin or a pause before the next Bull Run?

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Posted by Sol Palha's Tactical Investor

on Wednesday, 24 January 2018 09:02

btc-question-markFor greed all nature is too little.

Seneca

Whenever the masses fully embrace a market, trouble is usually close at hand, and that's what occurred with bitcoin; the masses were completely enamoured with Bitcoin. The masses were euphoric and were expecting bitcoin to soar to the next galaxy. Wild targets of $100,000 were being issued that sounded more like the ravings of a lunatic than of an expert. In an article published on the 4th of December 2017 we made the following comments:

Bitcoin, on the other hand, is now in the feeding frenzy stage, so this market is ripe for a correction. Tactical Investor

The problem with Bitcoin is that it’s not the only cryptocurrency; every Tom, Dick and Harry can issue a cryptocurrency, and to date, that is is what is occurring as we speak. There are so many cryptocurrencies out there that it in our opinion the better way to score a home run would be to issue your own cryptocurrency.

What caught our attention was that the masses were jumping up in joy and embracing bitcoin, but for over nine years they refused to embrace the equities bull market. Mass psychology states that when the masses are euphoric (not to be confused with bullish); the outlook is going to take a turn for the worse. And more or less that’s what transpired with bitcoin.

Clear Psychological signals that all was not well



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Currency

Positioning Ahead of Additional Dollar Weakness

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Posted by SprottMoney.com

on Wednesday, 24 January 2018 07:03

Through the first three weeks of 2018, one of the key stories has been the falling US dollar. Expect this trend to continue and even accelerate as we go through the year. 

After peaking with a false breakout near 104 in early 2017, the US dollar (as measured by the Dollar Index) has continued to plummet in 2018. As I type, the index is near 90 and already down over 2% year-to-date. Dollar weakness has traditionally been positive for commodity prices, and the evidence of this can be seen below. 

First, check the clear and obvious top in the Dollar Index. Note the breakdown through 92, and the most recent drop through the 2017 lows near 91. 

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In a reaction to this, note the clear bottoms and breakouts in the two most important global commodities, copper and crude oil: 



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