US Dollar and Euro Outlook

At the beginning of the year, the US dollar was the most despised asset of the investment universe. Headlines like the ones below were common:

  • Why it may be downhill from here for the US dollar – MarketWatch
  • USD poised for a bear market – FXStreet
  • U.S. dollar bear market: 3 reasons it can continue – SeekingAlpha

Contrary to the prevailing opinion, the Profit Radar Report was looking for a major US dollar bottom and a major euro top (the US dollar and euro move in opposite directions).

The February 15 Profit Radar Report published the chart below and stated: “Regardless of the when and where exactly the EUR/USD tops, the next major move is expected to be to the down side.”

The chart highlights technical resistance for the EUR/USD and a very bearish posture by commercial hedgers (smart money).

The EUR/USD (or euro) topped the next day, but wasn’t in a hurry to move lower.

The March 24 Profit Radar Report stated that: “Back in February cycles were not yet bullish, but that’s about to change. Smart money hedgers remain near record bullish. Although it is possible for the USD to carve out one more low (blue labels), its not required. We are looking for a significant USD rally and EUR/USD decline in 2018.

The charts below (published in the March 24 Profit Radar Report) shows a detailed US dollar Elliott Wave projection and long-term EUR/USD projection.

In addition to sentiment and Elliott Wave Theory, basic technicals showed bullish divergences at the February US dollar low, and up trend confirmation throughout the rally since.

What’s Next?

Over the coming 1 – 3 months the pace of this advance is likely to slow as the dollar carves out a small wave 4 correction and wave 5 rally, which should be followed by a larger wave 2 decline.

Once this sequence is complete, the dollar will probably rally strongly for many months, causing havoc on assets (particularly foreign US dollar denominated bonds) around the globe.

This will be a major theme and trend in the months/years to come. We do not want to miss the upcoming opportunities caused by the ripple effect of a rising dollar. As always, opportunity for some will mean risk for others.

Continued updates, along with trade recommendations, will be available via the Profit Radar Report.

ETFs that benefit from a rising dollar and falling euro include:

  • PowerShares DB US Dollar Bullish ETF (UUP) – Dollar ETF
  • ProShares UltraShort Euro ETF (EUO)
  • or short the PowerShares Euro ETF (FXE)

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

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US Dollar Chokes Gold, Silver and Oil Movement

Gold, silver and oil haven’t gone anywhere in 2018. Why?

The chart below plots gold, silver and crude oil against the US Dollar Index.

The US dollar has been in a tight trading range for most of 2018. Although asset correlations come and go, commodities are traded in US dollars, and the US dollar inactivity likely contributed to the lack of direction in the commodities market.

I assume a dollar breakout will awaken commodities.

The November 29 US dollar update featured the chart below, which projects a more significant low in early 2018.

The US dollar is right in the down side target range, but the process of carving out a low is taking longer than projected. We are still looking for a significant dollar bottom (perhaps after one more new low).

If the correlation between US dollar (strong dollar = weak commodities) persists, the US dollar should soon begin to put pressure on commodity prices.

The first chart highlights some basic support/resistance levels and patterns to watch:

Gold:

Potential triangle with resistance at 1,365 (Fibonacci resistance at 1,382). Support around 1,310.

Silver:

Two potential triangles. A break of the shorter-term triangle should lead to a test of the longer-term triangle boundaries.

Crude Oil:

The January high could be a significant top. The short-term triangle (if it breaks higher) could cause a re-test of the January top and an excellent opportunity to short crude oil via the United States Oil Fund (USO). A break below triangle support may have 55 (long-term trend channel support) as next target.

We will look at technicals, seasonality and sentiment to assess the direction and scope of the next move. Continuous updates will be available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

Dollar, Euro, Gold Update

Dollar Update

The January 2 Profit Radar Report published this chart and long-term US Dollar Index forecast:

The US Dollar Index could be at or near the end of a 5 ½ year rally. As per Elliott Wave Theory, it is possible to count 5 waves up from the May 2011 low. There are bearish divergences at the December highs, and investor sentiment is in favor of a lower dollar. We are alert for a potential multi-month US dollar decline.”

As it turns out, the US Dollar Index actually peaked on January 3, and spent the next 8 months falling lower.

In August/September we were expecting a bottom, but at the time we were not sure how big of a bounce to expect.

In November it became clear that the rally from the September 8 low to the October 27 high was only 3 waves, a first indication that the dollar bounce was over (a 5-wave move higher would have marked a trend change according to Elliott Wave Theory).

The chart below reflects the most likely Elliott Wave Theory count, which projects a more significant low in early 2018.

Smart money dollar hedgers are near record long the dollar, which could lead to a more sustainable rally even before the dollar reaches new lows (a solid close above 95 prior to a new low would suggest that the wave 5 low is already in).

However, hedgers are often early and may become even more bullish in the coming weeks. The lower the dollar falls, the better the buy signal.

Corresponding long dollar ETF: PowerShares DB US Dollar Bullish Fund (UUP)

EUR/USD (Euro)

The euro (EUR/USD) generally moves in the opposite direction of the dollar.

Since the above dollar analysis provides a multi-month forecast, we’ll use the EUR/USD for a short-term outlook.

On November 14, the EUR/USD broke above the black trend channel, and re-tested that channel on November 21 (blue circle).

The November 20 Profit Radar Report said that: “The EUR/USD is near support around 1.17. This could serve as springboard for new recovery highs.”

We now expect a rally above 1.21. The gray trend channel provides some short-term support/resistance levels. Trade should not drop below 1.17.

RSI appears unlikely to confirm new highs above 1.21, which would harmonize nicely with our expectation of a larger pullback.

Smart money euro hedgers, however, are nearly record short the euro, which will draw the euro down eventually. We’d love an opportunity to short the euro above 1.21 against a bearish RSI divergence.

Corresponding inverse euro ETF: ProShares UltraShort Euro (EUO)

Corresponding euro ETF: CurrencyShares Euro Trust (FXE)

Gold

This September 28 article included a detailed long-term outlook for gold.

The October 4 Profit Radar Report said all there was to know about gold for the weeks to come: “Support for gold is at 1,245 – 1,260. Resistance is at 1,298 – 1,304. For now, gold is likely to trade between support and resistance.”

Gold is pushing the upper boundary of the outlined trading range, but thus far there’s been no breakout. Silver failed to confirm gold’s push higher, which can be a warning signal. On balance volume has been increasing, which is a positive. Nevertheless, we would view a break above 1,307 with suspicion.

Corresponding gold ETFs:
SPDR Gold Trust (GLD)
iShares Gold Trust (IAU)

Corresponding inverse gold ETFs:
ProShares UltraShort Gold (GLL)

Continued forecasts for the US Dollar, EUR/USD, gold and silver are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

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US Dollar: How Big is the Risk of a Triple Top?

For the third time in 2016, the US Dollar and US Dollar Index Futures are above 100, and the PowerShares DB Bullish US Dollar ETF (UUP) is near 26.

How big is the risk of a triple top?

The latest US Dollar rally is in harmony with the US Dollar projection (chart below) and US Dollar forecast published in the May 15, 2016 Profit Radar Report:

Based on Elliott Wave Theory, the strong rally from May 2014 – March 2015 looks like a wave 3. The trading range since then looks like a wave 4. Upon completion of wave 4, we anticipate a wave 5 rally to new highs. The rally to new highs may well be more choppy (at least initially) than projected.”

The US Dollar has now come within tics of new recovery highs.

There are various resistance levels at 100 – 101 along with a longer-term RSI divergence. Short-term, RSI confirmed the recent price high.

In terms of seasonality, late November/December is one of the most bearish times of the year.

As illustrated by the original projection, this rally is a fifth wave. This means that the end of this rally will be followed by a sizeable correction.

Although the US Dollar may have further up side, risk is rising.

Continuous updates for the US Dollar, EUR/USD, stocks, gold, silver and other asset classes or sectors is available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

Can The Dollar/Stock Correlation Predict The Next Move?

A rising dollar has spelled trouble for stocks for much of the 21st century. Right now the US dollar is sitting right above important long-term support. The odds of a dollar rally are above average. Does that mean lower stock prices? Here’s a detailed look at the correlation between the dollar and stocks.

Everybody (including me) is trying to get a handle on the market they follow, but not ‘all roads lead to Rome’ when it comes to market forecasting.

Some roads (aka market forecasting approaches) are simply dead ends.

Correlations between asset classes and currencies are a legitimate tool to estimate future moves.

One of those relationships is the correlation between stocks and the US dollar.

Theoretically a falling dollar is good for US stocks. Why? A falling dollar makes US products cheaper in foreign countries, which in turn is good for US profits and stocks.

Does the theory hold up in real life?

The first chart below plots the S&P 500 against the PowerShares US Dollar Bullish ETF (NYSEArca: UUP), a proxy of the US dollar.

Obviously, the correlation is an inverse one and somewhat difficult for the untrained eye to detect.

The second chart plots the S&P 500 (NYSEArca: SPY) against an inverted UUP. This makes the correlation a bit more apparent. In fact, comparing the S&P 500 (NYSEArca: IVV) to the inverse dollar is almost like comparing it to the euro (NYSEArca: FXE).

The correlation held up for much of July 2008 to November 2011. What happened in November 2011? Operation Twist was reintroduced, but I’m not sure if that’s enough to upset the correlation.

Regardless of the cause, since November 2011 investors haven’t been able to count on the US dollar/stock correlation to predict future moves for either stocks or the dollar.

Still, it is interesting to note that the dollar is close to important long-term support with above average odds of rallying from here. The red boxes in the first chart shows that recent dollar rallies usually turned into speed bumps for stocks.

So, there’s reason in not ignoring the dollars effect on stocks entirely.

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF

 

US Dollar Rally Conflicts With US Stock Rally

Hot or cold, light or dark, black or white are common sense opposites. The US dollar and US stocks are a financial opposite, or inverse correlation. When the dollar goes up, stocks usually come down, but what happens when both go up?

2012 was a terrible year for Northern Michigan Cherry farmers. A hard freeze in late March did serious damage to the local cherry crop. What’s unusual about a hard freeze in winter?

Nothing really, and technically the freeze wasn’t the problem. It was the record-setting mid-March heat wave that coaxed out blossoms. Cherry trees started blooming when the freeze came and caused an 80-90% bud kill on Northern Michigan’s tart cherries.

Financial Climate Changes

Unprecedented climate changes are not only seen in weather patterns, they are also observed in financial patterns. The Federal Reserve’s ‘carbon footprint’ may be to blame for U.S. dollar/stock pattern shifts.

The U.S. dollar and stocks generally have an inverse teeter totter-like relationship. When the dollar goes up, stocks usually come down and vice versa.

The first chart plots the SPDR S&P 500 ETF (SPY) against the PowerShares DB US Bullish ETF (UUP). Green and red arrows are used to illustrate the inverse relationship between the S&P 500 (SPY) and the U.S. dollar (UUP).

Every green trend arrow is matched by a corresponding red trend arrow and vice versa. Since February 2013 we are seeing two green arrows as the S&P and dollar are trending up.

The second chart plots the SPY ETF against the inverse UUP to further illustrate the same point (plotting SPY against the euro or CurrencyShares Euro Trust – FXE – would yield similar results).

What Does This Mean?

UUP is about to run into resistance around 22.7 (the equivalent for the U.S. Dollar Index is 82.8 – 83.6). This is illustrated by the red range in the first chart. After a strong rally, the U.S. dollar is due for a breather.

The S&P 500 is not far away from an inverse head-and shoulders target around 1,565 in the all-time high at 1,576. This is strong resistance and should lead to some weakness, possibly even a larger reversal.

However, a falling dollar and declining stocks would still be contrary to the normal inverse correlation between stocks and the dollar.

This doesn’t mean it can’t happen, but it’s a missing piece to get a high probability signal (sell for stocks, buy for dollar). When historic correlations disagree with an overall decent trading opportunity, it’s prudent to be nimble and keep a tight leash on your positions.