Long Term Musings In January 2018

Everyone apparently hates the Dollar now and continues to cheer its slow but steady demise. In a little over a year we went from nearly par with the EUR/USD to an exchange rate of 1.25 and the pace appears to be increasing. I’m literally heading to the ATM every single day now stashing as much Euros as possible as they most likely will cost me a little more tomorrow. It’s almost starting to feel a bit like living in Argentina, except that nobody else seems to care. Not surprisingly almost everything else, equities and commodities in particular, have responded strongly. After equities, are we now heading for a bull market in commodities? Let’s review where we are on a long term basis:

I posted this chart yesterday but it bodes repeating as it drives most everything else. Now both President Trump and Secretary of the Treasurey Steven Mnuchin have made it clear that they want a weak Dollar favoring their efforts to reignite manufacturing and other types of industries in the United States. So it’s fair to say that we won’t hear much in terms of bullish sentiment concerning the greenback out of Washington anytime soon.

Push back, should it finally materialize, will most likely come courtesy of foreign central banks realizing that they are increasingly trading against the wind. In particular I’m looking at you Germany, Japan, and of course China. The latter may have a harder time openly confronting or counteracting a weak Dollar policy but although Draghi is currently feigning utter lack of concern he did suggest earlier today that we most likely won’t be seeing any interest rate hikes by the ECB in 2018 – and the year just got started.

While a EUR/USD at 1.25 seems to be of no concern to the ECB (which frankly surprises me) a push toward 1.3 or even higher will invariably begin to exert a drag on exports coming out of Europe. This stuff really isn’t that complicated and the United States, now flush in easy cash, remains to be the #1 consumer market on the planet. But all that said, once currencies start trending (up OR down) they usually continue far past your imagination, so being long the Dollar right now and right here will most likely turn out to be losing proposition.

Here’s a medium term view of the current bane of my existence – the EUR/USD. Suffice to say that life in Spain was quite a bit cheaper over the past few years and it doesn’t look like as if it’s going to get much better anytime soon. Which means I continuously am hedging myself to soften some of the damage.

Equities are completely out of control thwarting even the past eight years of perpetual effervescence. Looking at the monthly panel one cannot help but take pause as the S&P (shown here is the E-Mini) has gone vertical. This cannot go on forever and as always it’s not going to be the bears that break this exponential curve but a lack of buyers.

Now here’s gold which has been through hell and back over the past seven years. The current formation on the monthly panel could easily still resolve downward, let’s not kid ourselves, but a door is now presenting itself. Ignoring for a moment all the silly squiggly or straight lines, placed to somehow help us interpret the tea leaves of market price action, it is not unreasonable to assume that a push > the 1400 mark may just change the dynamics all across precious metals and perhaps even ignite a massive short squeeze to the upside.

Of course any of that is predicated on the Dollar remaining in the place it lives right now: beaten, abused, and hated by everyone. Which is strange IMNSHO as none of us would be getting out of bed in the morning without the prospect of attaining more of it. As a little side note: Any efforts by government to curb, control, or regulate crypto currencies are increasingly becoming a tough sell given that most of them have been hell bent on destroying the purchasing power of its own citizens. Just saying… ;0)

I was mentioning gas prices in passing yesterday and I was not exaggerating as this crude chart is looking ‘bullish as f..k’ if you will forgive my French. That, ladies and leeches, is a bonafide weekly squeeze & trend break out pattern and $80 or even $90 by this summer is becoming a real possibility. Once again my disclaimer that this is predicated on the Dollar continuing residence in the house of pain.

Don’t miss out on plenty more LT charts waiting below the fold:

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Now if you’ll excuse me, I have important ‘business’ to attend to. Enjoy your weekend!