Weekly report June 10
For new readers of the blog, I recommend reading the terminology page before the weekly reports.
I’ll start off with the currencies. The euro has formed a weekly swing low which is a strong indication of a larger degree bottom. I tend to think that the euro is about to start leading the currency cycles again as it did last year.
The euro started a new cyclical bull market in 2017 and so the euro should be the main driver of the larger cycle. This means that we should focus on the euro instead of the dollar when looking for cycle bottoms. We are probably going to move into a HCL before the FOMC meeting which will mark the bottom of the HCL. As the current cycle in the dollar is very stretched, we are probably in for a short cycle once the dollar finds its DCL.
Just like in a bull market there are also corrections in a bear market which the dollar is in at the moment. These corrections are just about scaring retail traders from one side of the boat to the other just in time to turn price back to continue the larger trend. That being said, we may not be out of the woods yet. Bear market rallies can go long ways and tackle even 15% before turning back down. We have rallied less than 7% on the dollar during the last 1,5 months and it is entirely possible that we could get a move to new highs after the FOMC meeting on Wednesday.
In the longer term picture nothing has changed. These kinds of corrections happen, and we call them intermediate cycles. The euro is about to or has already printed an intermediate cycle low. Once the botom is in, I think we will see new highs above 1,26 in the EUR/USD still this year.
Stocks are moving towards an intermediate cycle top after which we will probably see one more scary ICL before continuing the bull market run. As was with Janet Yellen, price has miraculously been heading towards all time highs just in time for a FOMC meeting. This has happened almost every time during the new rate hiking cycle starting from December 2015.
The FED has much easier time justifying rate hikes if the stock market is breaking new all time highs. The FED has access to the plunge protection team (officially known as ‘President’s Working Group on Financial Markets’) which sole purpose is to buy stocks. If the markets are happy, it’s easier to throw in hawkish policies. The chart above speaks for itself.
After the FOMC meeting we should see a normal decline to a DCL. I think that the cycle will probably left translate and price will start to decline towards an ICL due in July.
Let’s get one thing straight from the beginning. The precious metals sector is one of the most heavily manipulated sectors there is. The big banks like HSBC, Citi and JP Morgan are notorious about manipulation accusation. The banks can produce selloffs just to run retail traders stops in order to scoop up shares and contracts for themselves. The banks make money day in day out on this illiquid sector and that we have to get used to. On the bright side, cycles have tended to work pretty well in this sector and we are about to get confirmation on that.
We are right in the zone for an ICL to occur. The weekly oscillators are oversold, and the cycle is mature at 24 weeks. The ICL may have already formed on 21.5. but the start has been really weak, similar to the ICL in 2015 December. I would prefer to see the attack early next week as that would align with the euro moving to its HCL. However, if the attack happens later next week we might get new highs for the dollar. One nice scenario would be not to have an attack but that seems unlikely when you look how the miners have been making ICLs in the last 3 years. There has almost always been a really scary selloff right before the bottom.
The current setup is favorable for long gold, but one should stay cautious though as the banksters might want to for another leg down to scare retail traders out of their positions so that the big money can move in at the perfect time. Personally, I’m already in on my positions using options but I might do a hedge on those during Monday as we may get a final push to a real scary ICL in the next week or two.
I’ll probably do an article about sentiment next week where I’ll dig in on the gold sector in more depth.
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