USD/CAD Daily: Maybe a corrective top in place? Gold correlation?

USD/CAD Daily - Corrective top may be in place...(and gold correlation)
28 June 2018/9:01 a.m. ET

The corrective top labeled Wave A may be in place for USD/CAD.  Near-term support at 1.3256 with scope back to at least 1.2900 level if this A Wave is complete.  Gold price action may help, as the two have been correlated in here (second chart below). 

062818 cad daily.png

USD/CAD versus Gold (price inverted): The price series have been well correlated; thus a strengthening dollar should coincide with gold strength if this correlation continues.  Gold does appear a bit "oversold" at the moment. (see next chart below)

062818 gold vs cad.png

Gold Daily: Testing key swing low support and looking a bit "oversold."

062818 gold.png

Comment

US Dollar Versus Commodities

With the recent surge in the US dollar, commodities have been hammered lower--grains, gold, and oil.  [We shorted gold yesterday in a Flash Alert to our subscribers based on the chart setup we defined in our Key Market Strategies issue which you can find here. We have been short oil for the past few weeks based on our wave analysis.] 

Will dollar strength and commodities weakness continue?  We suspect so and believe the strength we are now seeing in the US dollar is corrective when place in the larger context.  When this run is over, and we can see it lasting through 2018 and into 2019 it will be time to short the dollar and load up on commodities--a long-term position trade. 

We were expecting an "inflation pop" this year.  But commodities are telling us otherwise at the moment.  Is it all trade related this fall in commodities, especially grains?  We don't know yet.  But the idea inflation is still quite dormant is the action in long bond yields relative to short rates.  In fact, we are expecting a rally in the 10-year Treasury Note -- you can see our view in Key Market Strategies with our coverage of TLT (20-year bond index ETF). 

061518 crb and dollar index.png

If you are interested in subscribing to Key Market Strategies, you can find information here.  Thank you.

Jack Crooks, Black Swan Capital

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Donald’s Dollar Dilemma

Click here to view the PDF

Quotable

“Only those who will risk going too far can possibly find out how far one can go.”

--T. S. Eliot

Commentary & Analysis

Donald’s Dollar Dilemma

061218 donald dollar.jpg

 President Trump has made it clear he wants to see the US trade deficit decline and appears willing to use all means necessary to achieve his goal.

Global macro analysis has shown there is truth to the idea a weaker currency may be the best single policy tool to help alleviate a trade deficit; with lag time of course. But herein lies the dilemma for President Trump—a trade war, some type of global risk-off event, and implementations of policies that lead to relative US growth are likely factors what will lead to a stronger dollar; at least over the near-term—and thus delaying any likely improvement in the trade deficit; thus, potentially leading to more trade concerns, more risk, etc.

Historically, strong relative economic growth and yield, driving capital flow, have corresponded in a powerful feed-back loop to push said local currency higher against competitors.  Read More...

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