Today I added another EUO position, which is in essence my strong dollar position [edit: also added strong dollar fund UUP in after-hours]. The reason being that USD (DXY) is taking another shot at the neckline (ref. the potential inverted H&S we’ve noted in NFTRH 662 & 663).
The futures chart shows the objectives should USD take out the blue dashed neckline and the March high. #1 is a 38% Fib retrace in the mid-94s and #2 is a 62% retrace close to the resistance that begins in the 98s.
It is time to be on the lookout for a rise in both USD and the Gold/Silver ratio (GSR). If that happens, the 2 Horsemen of the Apocalypse (work with me here :-)) would ride together and take market liquidity (conveniently here in the mid-summer doldrums?).
As inflation expectations, yields and the inflation trades try to bounce the reflation party could be wrecked if these two ride together. Today reflation sectors like Banks, Materials, Industrials and Energy did not respond favorably to the upside reversal in yields. May be just a lag or it may be something more, as in the market is running low on juice.
GSR is in a basing situation, slithering along unnoticed by many, but it shall be noticed by us. Neither of these has made a definitive move yet, but we should keep an eye on them because if they ride, the macro will likely go a way that most don’t expect, which is toward disinflation, deflation and/or draining market liquidity. Even if just for a correction.
It’s a tough market and not one to be caught guessing wrong in. At some point a correction will either come about or the reflation trades and inflation will resume. In the meantime, the signals are mixed and USD and GSR are sneaking along behind the scenes.