Well, at least my Euro short (EUO) did well today. It will basically follow the chart of DXY below. I have been adding to the EUO position as a hedge against the macro and simply because I don’t buy the Euro – literally or figuratively – and its contrary situation (commercial hedgers’ historic net short and the public over bullish). So today those positions finally caught a break.
The larger issue is it goes to show what happens when the currency that is being willfully devalued by the government and the Fed in favor of asset bubbles and all those speculators riding them takes a pause from its relentless decline. In my opinion a lot of casino patrons would be caught off sides. It’s as if a couple of machines saw the USD gaining strength and went with an alternate sell program as the market sold off into the end of the day.
USD is obviously just taking a bounce today within its severe downtrend. But as noted on the RSI, it’s coming from a very oversold reading and a secondary RSI low and positive divergence. May be nothing, may be something.
The monthly chart shows that DXY had just started to tickle the top of a long-term support zone in the 91.50 to 92.20 area before today’s bounce.
I am not a strong holder of the stock market because I see inner workings of some of the market’s dynamics, like this currency devaluation trick that depends on further devaluation for asset appreciation. The questions will be in the coordination, resolve and efficacy of the co-conspirators (Trump admin, Treasury & Fed) in getting the dollar back on the mat.
I see Uncle Buck oversold and cast to the curb by the herds. But then again, being short the Euro (in essence, long USD) that’s my bias. For all I know they could drive the buck down to major support at 88, in which case that is where I’d prepare to be very cautious whereas I am moderately cautious today.
As for the precious metals, if this is a fake out bounce in USD it’s probably as you were and a normal correction for the PMs. If USD develops into a real counter-trend rally situation remember that scores of inflationists would probably start hitting sell buttons on the miners. It’s wrong-headed (the same pressures that would drive a USD-supportive rush to liquidity would drive up mining fundamentals), but it’s the way it usually goes.
The above are my thoughts. Some of them may prove right, some wrong. But it’s how I see the situation at the moment.