Originally published by Chamber of Merchants
The Dollar had every reason to fly during U.S trading.
Both the 3.25% GDP and the 107 consumer confidence beat analyst estimates, and sure enough Gold dropped to $1180 USD while the dollar propelled to what should have been new highs. Yet, as quickly as the rally arrived, so it quickly sputtered into a real and tangible sell-off in the dollar.
The news that should have sent the FXCM Inc (NASDAQ:FXCM) to catapult the trend resistance line was simply not enough: The Dollar lost its footing.
I mentioned very clearly yesterday that the Dollar story was a Euro story. While I’ve read many posts and comments regarding the USD/JPY relationship, it must be remembered that the DXY Dollar Index consists about 60% of the Euro.
Hence, while the Japanese Yen remained week, the rally in the Euro against the U.S Dollar was enough to break the U.S rally…
Bottom in Gold
I believe, rightly or wrongly, that we witnessed the bottom in gold.
My reasoning is as follows:
- The economic data released last night was extremely bullish for the U.S Dollar.
- The economic data released was bad news for gold…
- Gold held at $1180 refusing to budge lower, even as the dollar rallied.
- The Dollar failed to reach new highs and as it started its descent, Gold gradually moved up to $1188.
It appears, for now, unless proven otherwise, that the great news for the U.S economy was an opportunity for smart money to continue its exit of the U.S Dollar.
At the peak of the dollar following the stellar economic report, this was the report that was released by a news source title “Dollar Extends Strong Gains:
“Analysts were looking for a smaller upward revision to just 3.0%.
The upbeat data added to optimism over the outlook for the U.S. economy amid expectations that increased fiscal spending and tax cuts under the Trump administration will spur economic growth and inflation.
The strong report also added to expectations that the Federal Reserve will decide to raise interest rates at its December policy meeting.”
“The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.41% at 101.62, still close to last Thursday’s 14-year peak of 102.12.”
About 5 minutes later this happened:
Buy the rumour, sell the news.
I commented to a subscriber yesterday that if the Fed raises rates, there’s nothing left to do but sell the dollar. If the Fed doesn’t raise rates, there’s nothing left to do but sell the dollar.
It’s a common trading event: Everybody expects an outcome. When the outcome occurs the trade ends, therefore the sell-off commences.
Bear in mind, there will still be fluctuations, especially if the Euro gets any bad news, especially with the Italian referendum on the 4th of December 2016.
However, for now, the cat is out of the bag with regard to the U.S Dollar. If you look at that drop above, it’s clear that there was no time to celebrate for the average Joe Trader. You were in the money, then you weren’t.
I’ve ready many articles over the past few days saying “Don’t be fooled by the U.S Dollar”… Yet it appears as though the Dollar just fooled just about everyone.
Gold
As I said, the price action is telling. We had all the reasons to plummet back to $1170 and below. Yet, as I type this, Gold is at $1188 and the US market still has another hour or so to go.
I’m going to get some sleep (hopefully) , so check it out here…but for now the U.S Gold Miner’s Index is only down 0.37%… And certainly far away from any low as seen earlier this week or last week.
Again, let me stress the importance here: The news from the U.S was great for the economy, and not great for Gold. Yet, here we are, the Dollar being sold off and Gold edging nearer to $1190.
The Gold Short Seller’s Index sold off…meaning the bets on a falling gold price are reduced:
And the uber sensitive Direxion Daily Junior Gold Miners Bull 3X Shares (NYSE:JNUG) 300% leveraged gold fund pared its losses and appears to be close to ending green:
Now, keep in mind, that this can all come down to profit taking, and that the dollar will soon rally again.
However, logic dictates to me that the Dollar failed to make a higher high. That is not the sign of a bull trend.
Conclusion
With the 4th December’s Referendum, 6th December’s Gold standard news and 14th December’s Rate hike, there were still be many surprises, so let us not jump the gun.
Yet, I ask myself this:
If we received every reason for the Dollar to skyrocket today, given that the rate hike on the 14th December is now 100% or more in the bag, why did the Dollar tank?
Consequently, can we extrapolate today’s price action to the 14th December? If we get the rate hike which is a 100% bet by the market, what will happen to the dollar? Will it rally?
Today’s price action tells me that the answer is “no.”
We are possibly repeating the same process from last year, however, it appears that the process has been transposed to a few weeks before the Fed Hike…
As always, there are no absolutes. This could be an anomaly. Yet, the the price action is so clear.
Someone, with a lot of capital had their finger on the sell button and sold into a massive buying frenzy, ultimately killing the dollar’s rally.
Oh look…the Chinese Yuan just happened to get stronger too…
As I mentioned in previous posts, if I were China, I would redeem my I.O.U’s at the best possible exchange rate… And that’s what appears to be happening.
While it’s not time to celebrate yet, last night was a tell-tale sign that the Dollar rally and perhaps even the record highs might not stand the test of time…and by that I mean the next two weeks.
Keep in mind that in non-US economies, Gold is still not shining. In Australia for example, the Gold price is $1586 due to the exchange rate. The non U.S gold sector will rally when the Gold price rallies faster than the rising exchange rate. Silver on the other hand has kept and appears to be building a platform just under $17. The precious metals, I believe, are building up energy which will soon be unleashed.
All in good time.