Youtube video at: https://www.youtube.com/watch?v=lly-J3LHGVk&feature=youtu.be
My analysis on Iran is so far proving to be true. This is all about US Dollars. This is all about China and Russia. This is all about preventing a hit on US Dollar demand.
It came out that President Trump gave the orders for American bombers to turn around when they were 10 minutes away from the point of no return. President Trump claims it was due to the loss of life from American retaliation. Saying that the Iranians took out an unmanned vehicle, no loss of human life, so the American response would have been disproportionate.
I have spoken on how the Russians would likely go to war over Iran. Iran is crucial to their geopolitical ambitions. Syria was as well, this is why Russia for the first time in her modern history, initiated a military operation outside of her post-Soviet sphere. Very telling. Syria had to be kept stable due to Assad accepting a Russian gas pipeline (while preventing one proposed by Qatar). Iran has a large gas reserve, and Russian giant Gazprom has invested a lot of money in the Iranian gas fields. That gas is crucial to the Russian gas pipeline in the Middle East, and crucial for maintaining an energy dominance over Europe. Of course, Europe can import LNG from the US, but they are paying almost 4 to 5 times more than they would for Russian gas. At a time when government spending is increasing, and government are going broke, Russian gas looks much more appealing.
I believe the Russians had quite the say when the Americans proposed a strike on Iran. Perhaps some of the Pentagon military strategists also knew that the probabilities of a Russian retaliation, and even what China would do, was too high of a cost.
As mentioned in the past, the Saudi’s have a huge say in this, because they are losing market share to Iran just because they only take US Dollars for oil while Iran does not. This is what it is all about (and perhaps why the Americans want the US Dollar to go lower). If the Dollar goes higher, more nations will want to buy oil from Iran or any other nations that choose not to use US Dollars (Venezuela perhaps once their production comes back online).
Unfortunately, I think a strike on Iran is still high. It really is the Russians who are preventing it, with their striking capabilities. The war hawks in Washington and others with an interest to see Iran fall, are angry this strike did not go through.
If some event occurs in the Middle East, and we see Iran involved, President Trump will be forced to act. He will be blamed for not acting previously, and because of his non-action, this event took place. He should have taken a harder stance on Iran to show them there are consequences to their actions.
While the geopolitical event was the talk of the down, let’s not forget that there was a Federal Reserve interest rate decision this past week.
The Fed held rates, and took a dovish stance. Markets are now pricing in a 100% chance of a rate cut in July…debating whether it will be 25 or 50 basis points.
As mentioned in this blog, I talked about how rates will be cut very soon. If they did not cut in June, they would be laying the foundations of a rate cut, and that is what the Fed did. Analysts are already pricing in 2 rate cuts for next year, and only 1 this year… however I believe we may see more.
It seems the first cut will have to be 50 basis points due to what is happening in the bond market and the Fed Funds rate. The 10 year dipped below 2% this week for a brief period of time.
Something that was very strange was the fact Mario Draghi came out a day before the Fed rate decision to say that the ECB is open to lowering rates even more negative, and maintaining QE for longer. Very strange. He could have waited until the Fed was done, but it seems the Fed accomplished their goals via the Fed: lower yields and a bounce on the stock markets. Not saying there was some collusion here but it seemed strange to me.
You can see the US Dollar sold off, and it seems 95.00 is going to be tested. I expect that the Dollar will drop when the Fed cuts as well. However, I need to stress, that I am still Dollar bullish in the long term. Why? When all other central banks begin to cut, what currency would you hold? I still believe people will run into the US Dollar due to it being the reserve currency. This is the quagmire the Fed finds itself in. They want a low US Dollar, but money will still run into it even when rates are being cut.
Just looking at the chart, we have a lower high confirmed, and I expect at least another lower high as in a trend we expect at least 2 swings.
This close for Gold is very important. Have been speaking about this level, and now let us see if we can hold this break for this next week. Again, Gold to me is a confidence crisis asset. There are talks of it being an inflation hedge, but I argue that inflation and hyperinflation are products of a confidence crisis or lapse. People not trusting the government, not trusting the banks, not trusting the money they hold.
This break can potentially be very telling for the geopolitical and economic environment that we are heading too. Many people are realizing that central banks have lost the plot. They have no more tools. They can just cut rates, while Europe and Japan go more negative. All they can do is QE and purchase assets keeping them propped. This is still in its infancy, but I think very soon many other people will begin to understand the difficult place the central banks are in.
They are pretending that their policies are working just to maintain confidence.
On a final note, keep an eye on Silver. I want to see if it will follow its larger brother, Gold.
The S&P briefly closed above all time new highs. Buoyed by a promise of cheap money backed by the central banks. Bad news is now good, as bad economic data buoys the market as more and more investors/traders expect the Fed to cut rates and provide easy money.
You need to ask yourself why the market will continue to go higher? When rates are cut, where will you be going for yield? Bonds? Real Estate? I believe it will be stocks. Bonds will be yielding a low yield, and when rates are cut, people expect more rate cuts which is a factor to put off a real estate purchase for the time being. It will be stocks. I think the precious metals will do well, more on the charts very soon below, but I expect stock pullbacks to be bought up.
It might not make sense to do so, but it is about where yield can be made.
Looking at the S&P on the 2 hour, and it provides us a potential trend reversal trade. Nice uptrend, and now ranging at this all time highs zone. I am watching the flip zone around 2930, ideally hoping to see a pattern and a lower high being made.
Beautiful pattern here on the German Dax. The 2 hour showing sellers entering a resistance zone. What do I like? The head and shoulders pattern of course.
Like what I see here on Copper. Discussed this last week. We have had the break with a nice strong break at the 2.6650 zone. Would now like to see some sort of higher low swing form just to give me more confluence on Copper.
We spoke about GBPUSD in the past, regarding the head and shoulders pattern. The neckline did not break, but now we are getting a second chance on the head and shoulders pattern to break. The neckline is the 1.2750 zone.
EURGBP remains a constant guest on my blog posts. I still like the possibility of a topping pattern here. Like to see a pattern that could develop here, watching for a head and shoulders pattern. We will remain patient. Watch the 0.8875 zone just because it was the higher low we are playing with, and also acted as support. Want to see a nice clean and strong break here.
USDJPY is more of a macro thematic trade. We have broken a very important flip/support zone. I see the Yen a safe haven play, and more money may run into the Yen just because Japanese debt is backed by the Japanese citizen, who have the highest saving rates for a western nation. Meanwhile in America, the citizen is largely in debt and the US relies on others to buy their debt.
There is a correlation between the Yen and Gold that many do not speak about, and this is what I am anticipating…maybe even concerned about. I think this is a strong break and as long as we remain below 108.60, there is a long way to go.
The CHFJPY is at a major support zone, and created a bottoming pattern that caught my interest. I like the break higher on Friday. I will assess how the market opens before taking a position.
A lot of JPY pairs are at major support levels, but there is no pattern being made yet. They are pairs to watch for some bottoming confirmation.
Like what I see here on GBPCAD. A nice downtrend and we have reached a big support zone. I am watching for a bottoming pattern here. There is an engulfing candle on the daily chart which is telling, but I am watching the 4 hour charts for a break of the 1.6890 zone for a break. Ideally even make a head and shoulders there as well.
Really like AUDCAD here. A very nice downtrend which as reached a big support level. You can see this clearly on the daily chart. I like the bottoming pattern being made here. Had a range, and now watching for a higher low to be formed. That higher low will provide us with more context and confluence for this trade.
I like what I am seeing here on Ripple. Higher lows have been confirmed with this recent break and close over the previous highs. This has a lot of room to move as long as we hold this trend.