There is a lot of noise out there about the Mexican Peso and the Presidential Elections. So I can't think of a better time to focus on the supply and demand dynamics in the forex markets to see if we can determine the most likely direction of the Peso. Fortunately, as technicians, we can just ignore all that junk and spend our time on the only factor that actually pays, which is price.
Have you guys noticed that the prices of Gold and Silver have gone nowhere for 3 months? There's a reason why we've wanted to stay out of this market since early July and let them digest their impressive gains since the January lows. Knowing when to stay out of a market is just as important as knowing when to be in it. Opportunity cost should also be considered in the risk calculation.
Today we are taking a deep dive into Gold and we're going to look at things from all angles, all currencies and all time frames.
This morning I was over at the Nasdaq in Times Square chatting with Amber Kanwar on BNN. We discussed why I think U.S. Stocks continue to rally and which key sectors will drive prices higher. Within each of these very important sectors, there are large-cap stocks leading the way for them. I think we're closer to the beginning than the end of this move higher in the S&P500 and these other important sectors. At the end we touch on why extremes in sentiment could be the catalyst to send British Pounds even higher.
Last week I shared with you guys what I thought was an interesting breakout. Like I try and do every now and then, I deleted the labels and the y-axis so you guys wouldn't have any biases towards the charts, knowing what it was. Everyone pretty much agreed that it was a screaming buy. Today we're bringing back the legend and y-axis so you can see exactly what is it. We are also flipping it upside down, the way it was originally intended to be, so you can execute according to your specific time horizon and risk tolerance.
Yen strength across many of its crosses has been a structural theme for the better half of the past year, but today a few of these pairs look to be setting up for some mean reversion over the short-term.
Pound / Yen remains in a downtrend below its downward sloping 200 day and made new lows in April, but momentum diverged positively. Today prices closed back above the February lows to confirm the bullish divergence and failed breakdown. This suggests we want to be long if prices remain above the February lows on a daily closing basis and add to our positions if prices close above the downtrend line from the February highs.
The weight of the evidence has been building in favor of the bears over the last week or two, making the US equity weakness this week anything but surprising. Throughout the duration of this post I'll outline the evidence that I've been noticing over the last two weeks and what it means for us as market participants moving forward.
Yen Strength - The Yen broke out structurally late last year and hasn't looked back since. Tactically my upside targets were hit this week, but structurally this market has a lot more room to run. Given the high negative correlation between the Yen and US equities, this should continue to be a headwind for equity markets going forward.
From the Brazilian Real and Australian Dollar to the Turkish Lira, many global currencies have been gaining significant traction relative to the US Dollar over the past several weeks and months. These currency moves have also had significant impacts on the equity markets of their respective countries as they tend to be positively correlated.
Last week the New Zealand Dollar joined that group by breaking out across multiple timeframes.
We are super excited to announce today that we have added U.S. Dollar denominated charts of Bitcoin to our Members Only Chartbook. The charts included will be updated regularly on both Weekly and Daily timeframes. The Crypto-Currency's $6.5 Billion market-cap provides enough liquidity for many investors around the world. This has attracted huge venture capital investments in bitcoin-based companies from legendary tech investors such as Fred Wilson of Union Square Ventures and Marc Andreessen of Andreessen Horowitz.
Members of Allstarcharts.com have been asking us to include this in our chart work and discussions. So as we always try and do, we listened and added them. Starting this week, Bitcoin charts on weekly and daily timeframes will be included in the list of Currencies, along with U.S Dollars, Australian Dollars, Japanese Yen, Canadian Dollars, Swiss Franc, Euro, etc.
From late January until today, there have been tactical breakouts in currencies of countries with significant commodity exposure relative to the US Dollar. This has provided a tailwind to a number of emerging market equities that have subsequently followed through to the upside. Many of these equity markets are concentrated in Latin America, but areas like South Africa, Africa, Australia, and Turkey have benefited as well.
Whether or not these tactical moves will continue and develop into long-term trends is entirely unknown, but the risk/reward in the US Dollar/Brazilian Real looks particularly skewed in favor of the bears here.
