As posted in my previous blog post, New York Fed Williams spoke about interest rates being cut faster and held low for a prolonged period of time to battle slow growth.
The market took this as a sign that the Fed will cut even more come the end of July. The market has already priced in a 25 basis point rate cut, but readers of my blog know that I expect much more rate cuts…it seems the market wants a larger cut.
On Friday, New York Fed Williams came out clearing up his comments from the day before. He said that his comments were NOT meant to be taken as monetary policy suggestions currently.
The market did not like this. The market wants CHEAP MONEY. The Fed will not allow stocks to fall. Fed chair Powell may well have to deliver a 50 basis point cut at the end of the month just to ensure the market does not sell off when he announces a 25 basis point cut!
We are hearing more on the geopolitical front regarding Iran. My thoughts on Iran and why it is crucial for the Russians and Chinese in hitting US Dollar demand have been mentioned many times on my social media, my blog posts and youtube videos.
This environment that I have been warning about is coming to fruition. At the beginning of the year, I warned that we should ignore these comments about more rate hikes and the strongest economy. That central banks would begin turning dovish in Spring, and then cut rates before Fall. This path is still valid and we are seeing this.
From there, central banks run out of options unless they want to follow the Japanese and European route (the Japanese model being our best case scenario) and go to zero and negative rates. This would have repurcussions on the US Dollar being the reserve currency…
Ray Dalio took the financial world by storm with his newest article which he posted on LinkedIn about paradigm shifts. It can be read here:
Ray Dalio is suggesting a case for Gold. It is likely the big moves afterwards were due to institutional funds and big money moving into Gold after reading Dalio’s article. His views and opinions are still highly respected as he used to run the largest hedge fund in the world, Bridgewater Associates.
He speaks about the paradigm shift in stocks and bonds. His thoughts on bond echo what I have said. There will be a time when holding bonds make no sense as yields fall. There will be a sell off and interest rates will spike. Ray Dalio argues that central banks cannot allow this to happen. They will keep interest rates suppressed. This means the Federal Reserve will print up the money to buy this debt…something which can happen as long as the US Dollar is the reserve currency and has artificial demand all the time.
However, if this happens, the US kills the debt market like the Bank of Japan and the European Central Bank. They are the only buyers. If yields are kept low, and the US government buys them up to keep rates low, will US Treasuries be bought by foreign countries? By foreign fixed income funds? Currently yes because out of the western debt, US Treasuries still yield a decent amount.
This monetary environment, combined with geopolitics is leading to a positive environment for precious metals. Gold being a confidence crisis hedge. When people start to run out of confidence in government, in banks and in the money they run into Gold. I also stress that human history is just cycles of hard money and soft/fiat money.
A pretty quiet week in terms of economic data this week, but the most interesting will be the ECB. Draghi is stepping down in a few months, with Christine Lagarde taking the reins of the ECB. Draghi was expected to remain neutral until he stepped down, however he has issued more stimulus and talks about going even further negative!
- Monday: BoJ Kuroda Speech.
- Tuesday: ECB Bank Lending Statement, GBP FPC Meeting Minutes.
- Thursday: AUD Lowe Speech, ECB Interest Rate Decision and Monetary Policy Statement, JPY Tokyo CPI ex Fresh Food (July).
US markets ended weakly and the Nasdaq chart looks good for a bearish move. I would be cautious of the higher low swing at 7778, but we did not hold resistance turned support. On the 4 hour chart, we have confirmed a lower high with a very strong candle break.
The other equity charts are awaiting to confirm a lower high on the 4 hour charts, however they have not broken below the resistance now turned support from previous all time highs. The Nasdaq leads in breaking below that.
We need to talk about Silver. A great trade for us last week with the second higher low swing break above the flip zone target. If you look at Silver on the weekly chart, we have broken above a wedge pattern. We are now retesting this resistance turned support now. I would expect to see some sort of pullback, however this is a very strong trend.
Talks are that a big whale has been buying up Silver and Silver contracts…maybe the Chinese?
Really like the AUDCAD chart on the daily. We had a nice strong break, and now retesting resistance turned support. We also have our first higher low in this new trend and broke above the lower high swing. Also this bounce came from a fake out breakdown.
I really like EURSEK here. A nice downtrend, and we did bounce at a support zone. Would be nice to see a pullback which creates a higher low which would then create a head and shoulders pattern and also close above a flip zone. The 2 hour chart shows the same type of pattern.
CADCHF unfortunately had our break on Friday, so now this becomes an early trend trade. Here I would await for a lower high to be confirmed before entering.
GBPNZD looks interesting because it is displaying some support being built at a flip zone (can be seen when you zoom out). I am waiting for a break above this range pattern and evaluate once we get a confirmed break.
CADJPY was on watch last week and we had our break. We have even retested this zone and am expecting further downside as long as we hold the resistance zone. Expect multiple swings to the downside.
USDCAD still looking good. We are seeing some bottoming here. There are two zone here we need to watch. The first is the break of 1.31 and the second would be the 1.3150 zone. Nice ranging pattern and later on, we could get a head and shoulders pattern when we test 1.3150 and pull back before breaking out.
EURGBP has been frustrating for the past few weeks, but FINALLY we got an entry on the 2 hour chart. We are currently at a flip zone, and there is a potential here to create a head and shoulders pattern. That is ideally what I would like to see. Would like to see a bounce and the sellers jumping in indicating a strong selling pressure.
USDCHF showing a breakdown with a head and shoulders pattern. We have retested this zone, and are now awaiting for a break lower. Structure looks good.