"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET



Thursday, September 4, 2014

Draghi and Company Stick a Fork in the Euro

"Stick a fork in it - it's done!" is a common expression one hears down in Texas during Bar-B-Q season.

One could say the same thing about the Euro after the ECB slashed interest rates from 0.15% to a paltry 0.05%. I suppose the only thing left is to slash to absolute zero at this point and start handing out money to the general public.

Regardless, the Euro went "KERPLUNK" and the Dollar soared higher as the interest rate differentials between the two continue to be accentuated in the minds of forex traders.

Take a look at the Euro chart below. After a brief period of consolidation in early August, the currency has been careening lower, crashing through one layer of chart support after another.



If today's low near the 1.300 level fails to generate any buyers, another 200 point plunge to down near 1.2800 is not out of the question. The RSI is deeply oversold but when it comes to currencies, oversold or overbought rarely mean much if anything.

With the Eurozone economy sluggish at best ( and being hurt by sanctions imposed on Russia ), there is simply not much reason for traders to turn aggressive buyers of the common currency as the Central Bank is trying everything but its own version of QE at this point.

They have made the usual calls for banks to lend but what good does that do if not enough want to borrow? Negative interest rates to essentially punish banks for not lending seem to be foolish to me as it only encourages reckless lending to those not credit worthy and thus creates another entire set of problems in my view.

Meanwhile, the counterpart of the Euro, AKA, the Dollar, is soaring. Look at the weekly chart for some longer term perspective.



The USDX has gained 5.5% since early May of this year and is currently working back to the top side of a more than two year long range trade. There is some light resistance near 84 with more formidable resistance near 85. If the Dollar breaks through both levels, one would have to say that a run to 88-89 is not out of the question.

The Daily chart shows a powerful uptrend underway. Simply put, it has become a matter of dueling economic performances. Traders are looking at the relative performance of the various nations/zones whose currencies comprise the USDX and compared those to that of the US and are voting in favor of the US.

This strength in the Dollar also tends to depress commodity prices in general. One thing that concerns me is that we are getting a surge higher in the Dollar at exactly the same time we are getting more and more confirmation of a bumper corn and bean crop. As a rising Dollar makes US grain/beans more expensive on the global market against our competition, prices may have to take into account the higher Dollar. Translation - foreign buyers of US grain may be waiting for prices to fall yet further than they otherwise would have to help offset the stronger greenback.

One last thing- this rise in the US Dollar is not going to make it any easier for gold to rise in price. In foreign currency terms, gold is doing okay, especially Eurogold but as said before here many times, it is geopolitical events supporting the metal.

As far as Europeans are concerned, an interest rate environment such as the ECB is creating, is a two-edged sword. On the one hand, it lowers the opportunity cost of holding gold since bonds there pay next to nothing and thus incentivizes ownership of gold. On the other hand, the stronger Dollar ( via weaker Euro) raises the price of the metal and thus makes it more expensive to buy and own.

That is why one must view the chart to gauge which view will dominate. If Eurogold takes out the psychological and technical resistance level of 1000, then maybe we have something. For now, it is range bound.



51 comments:

  1. Hi Dan & Co. What trading range do you believe we are in now for EUR/USD in the short-term?

    ReplyDelete
  2. Thanks Dan, sound reasoning.

    Need proof that the bullion banks (they're empty, I tell 'ya!) are manipulating gold on behalf of the CB's?
    Here ya' go...

    http://www.tfmetalsreport.com/blog/6099/riding-line-update#comment-form

    How's that dollar collapse working out lately? ;-)

    ReplyDelete
    Replies
    1. DPH;

      I would not waste any more of my time reading that sort of claptrap. We all know what this type will say after reading their mantra for these many years... their problem is that they cannot believe that gold will not go continuously higher but somehow believe it ( and silver) are the only markets that MUST, MUST go higher. If they do not, something evil is afoot.

      It is stupid, childish thinking that has no part in any sound trading/investment strategy. When the conditions are right, the metals will move higher. As of now ( and it has been that way for the last three years ) the conditions are not favorable for higher metal prices. It has nothing to do with manipulation or price suppression schemes and everything to do with a strong Dollar, falling commodity prices, soaring stock prices and a fall in inflationary expectations as witnessed by the TIPS spread.

      Such analysis however requires a great deal of time in research and objectivity. That is not required for selling sensationalism. the only people that they are hurting however is themselves and those who swallow the swill.

      Very sad...

      Delete
    2. It's marginal entertainment value at best and a portal into a rabbit hole at the least.
      Besides, where else would I learn that inter-dimensional lizard people/ aliens (aka important historical policticans or royalty) are causing much of earths problems over the millenia? :-0

      You-can't-make-this-stuff-up... and on some level it's interesting if not abstract to observe.

      I guess at this point I regard most of the content like I do the sensational tabloids you find on the rack in the checkout lines at the grocery.

      I'll leave the online tabloid stuff where I found it and not leave anymore links down into someone else's deep rabbithole....where lizard people live and are biding their time to spring their plan on everyone!

      Sad stuff, indeed.

      Thanks again Dan for your analysis. As you've saying for some time...the USD is far from dead, the charts don't lie.







      Delete
    3. I hadn't read that particular website for some considerable time, but I agree, it's pretty sad material

      If someone wants to buy a Futures contract, somebody needs to take the opposite side of the trade and sell to them; as a Market Maker - or "Bullion Bank" - this action does not necessarily represent a trading strategy or a reflect a directional view of the market, it's just what you do, in the same way as when a grocery store sells you milk or eggs or cheese it doesn't mean it is either "bearish" on food prices or trying to hammer the cost of living down

      As Keith Weiner has been pointing out for months, there has been a very significant "cash & carry" arb opportunity die to structural contango (i.e, anti-backwardation) in both Gold and Silver markets, such that by buying a lump of metal and "selling it forward" in the Futures market there was a very significant and riskless profit to be made - far higher than investing in e.g. T-Bills. Buy the metal today, short the Futures, deliver the metal at expiry

      This did not represent either price suppression or a directional view on the market: it was plain old day-in / day-out Market Making, and when First Delivery Day arrived earlier this week, the speculators who had gone Long were not only left holding a non-performing bet, but were called upon to post the full (unleveraged) cost of the metal they were holding out for delivery of: many didn't want to take delivery, and closed their positions by SELLING the futures which they had previously bought from the Evil Cartel Bullion Banks, and this caused the market to tank

      The Evil Cartel Bullion Banks - or as Keith Weiner has described them - the Buyers of Last Resort - were consequently left holding significant blocks of physical metal which was no longer required for delivery, as the underlying Short position had been unwound (the counter-trade to the speculators selling out of their positions). So, what are you going to do if left holding a large amount of physical metal which you no longer need and don't especially want? SELL IT!, further depressing the price

      This is not a conspiracy - this is commercial reality

      Delete
    4. For the nitty gritty - and a total misinterpretation of this - check out Harvey Organ's site, stardate 3rd September:

      OI for September [Silver] fell by 1077 contracts down down to 1502 contracts.

      http://harveyorgan.blogspot.sg/2014/09/sept-3gld-loses-another-269-tonnes-of.html

      So, on the day they had to pony up the purchase price, 40% of the market decided it didn't really want to go into delivery, and this is interpreted as

      The bankers just do not like the high OI on silver and it is driving them crazy.

      The bankers have no control over Open Interest; OI only collapses if existing Long positions also want to close their positions and, in fact, if you are a Market Maker backed by a warehouse full of physical metal, you pretty much don't care either way. A primer on OI can be found here http://en.wikipedia.org/wiki/Open_interest

      But no, in the Goldbug's mind nothing is ever as straightforward as commercial reality, and the fact that "We had 57 notices filed yesterday, so we gained 102 contracts or 10200 additional oz will stand for delivery". was interpreted as "Somebody was badly in need of gold."

      On COMEX, Delivery Notices are filed by the Seller, not the Long Position who intends to "stand" for Delivery; right up until 3 trading days before month end, it is the holder of the Short position who decides not only whether to go into delivery (or close his position out in the market), but also WHEN to make that decision. (see http://www.cmegroup.com/rulebook/NYMEX/1/7.pdf section 706 B.1 on page 9)

      With this in mind, the fact that 102 contracts were Notified for delivery does not indicate that someone desperately wanted the Gold, but, rather, that someone desperately wanted THE MONEY, and was more than happy to dump the physical into the delivery process at the earliest opportunity

      Harvey Organ is a retired retail Chemist; Craig Hemke (aka Turd Ferguson) is a failed retail stockbroker, who subsequently failed in an endeavour to set up a web-based Pensions service, and whose primary source of income is from running a frozen yogurt franchise.Neither of these Muppets has any experience of the precious metals markets they pontificate about

      Delete
    5. Zhang Lan;


      The latter point about the delivery process is spot on. The incredibly brazen twisting of the facts by the website you mentioned is proof that these people are completely ignorant of what they are writing about.

      The delivery process is monitored by pros to see IF THE SELLERS WANT TO DELIVER OR NOT. No deliveries, or few deliveries, is evidence that the commodity in question is in STRONG HANDS and is being held off of the market for the time being until prices move higher. That was the case with the recent soybean delivery process that I have been documenting here for some time now.

      The notion that a number of deliveries are being filed so that is somehow evidence that "someone badly needs gold" is so idiotic, that it borders on the comical.

      The real "banksters" out there are not the "evil bullion banks" but those who keep spreading this sort of misinformation and falsehood and duping the unsuspecting from looking objectively and rationally at an asset class that is currently out of favor and going nowhere until the conditions are right.

      Delete
  3. Dan,
    The dollar getting stronger and stronger can't be good for the stock market can it? The debt ridden country is not helped by this stronger dollar and the commitments to fight Isis and other hot spots or do I as usual have it wrong?

    Thanks Dan

    ReplyDelete
    Replies
    1. Concord;

      I view it as a mixed bag. Think about it this way if you are a foreign investor looking to place precious capital. If you put it into US stocks, you get the capital gains from rising prices along with a currency gain, which is icing on the cake.

      The stronger dollar tends to negatively impact those companies with overseas business sales as it makes the cost of their goods more expensive and thus less competitive but it helps the shares of those companies who import here as it lowers their expenses paid for foreign goods and supplies.

      Capital tends to flow to where it can obtain the highest or best yield when safety factors are also considered.

      For now, I cannot see interest rates soaring sharply higher here meaning that any rise in interest rates here in the US will be slow/gradual when they do come meaning that the rise in the Dollar should be a measured one.

      Of course, all of this could change which is why I try not to be too dogmatic when it comes to saying that markets must do this or do that.

      STocks are still the place to be for those looking for good return on invested capital and will remain so until the day that they don't. As to when that might happen, who knows?

      Delete
  4. Wow...nearly 10% lost through summer for the EurUsd! (1.40 - 1.29).
    I still have 1/3 of my short position left but it seemed we were due for a small bounce towards 1.33, but that was before the ECB speech...instead we are diving towards the next fibo level and the inf bollinger band on the weekly time unit near 1.2750.
    Well...I don't have anything more to do, there. I'm waiting for the Eur Usd to reach the orange line on the daily chart below, or 1.2750 before end september.
    Then, on a monthly basis, we'll see if we can have a kind of bounce, of if even there, Eur Usd chooses to head directly towards 1.20...???!!!

    http://i58.tinypic.com/11h5c1y.jpg

    ReplyDelete
  5. Ajik, like Dan says 128 is some support and if and when it gives way, next stop is 120. BTW, long term we have been 10 years sideways between 12-160, so if and when 120 is broken monthly, objective becomes 14 year lows of .80.
    http://www.mrci.com/pdf/eu.pdf who the hell knows? I sure do not.

    ReplyDelete
  6. Thanks Steve. I'm not a trader, but I'm looking to get short EUR/USD for the next year.

    ReplyDelete
    Replies
    1. Ajit, if you are looking to get short the Euro for the pull, now is probably as good a time as ever. Ultimately I think it goes into the ashcan of history, but what the hell do I know?

      Delete
    2. I took a 50 percent short position in EUR/USD 1.295. If it comes up near 1.33 then I will take on a full short position.

      Delete
    3. Aajit, I think that is reasonable

      Delete
  7. Well its official.

    Turk, Rubino, Pento, Schiff, etc. have now been completely discredited.

    Anyone curious where European stock indexes are going next?

    Look no further than Argentina's Merval Index.

    Go to Yahoo finance and see for yourself. It is now going completely parabolic.

    FTSE, DAX, CAC, etc. are all headed into Outer Space with negative interest rates, investors have no choice but to buy stocks to preserve wealth.

    Gold?

    Forget about it.

    ReplyDelete
  8. Concord, it is funny but I was wondering what happened to you the other day. Glad to see you are back, BTW, do you remember Preditor1976? Did he go tap city?

    ReplyDelete
    Replies
    1. Hi Steve,
      I still think of your advice short the yen and beans. Wish I had done it. You kept it really simple.

      I asked Dan what the implications of such a strong dollar are for the stockmarket. Can it be good? Don't think so.

      Delete
    2. Concord, I do not think strong $ matters; we all complicate things.

      Delete
  9. GDX imploding, GDX/GLD ratio now rolling over, will probably plunge to new lows eventually.

    ReplyDelete
  10. Tesla at new highs.

    $30 to $285 in 18 months.

    Gold bugs watching that chart probably with that they had never been born.

    ReplyDelete
  11. GDX may be taking out support. It's price just broke the lowest level since the big spike from the USFed announcement. Only pennies, but that is where support failure begins That was the only thing keeping gold up. The dollar is rallying big. Keep all passive gold hedges intact. I still hope to add to my long gold down below. I like gold for what it can do.

    This is supposed to be the strong time of the year for gold. It is looking poorly right now. Silver just keeps getting punched around.

    Not looking good

    ReplyDelete
  12. xau and hui sprung huge bull traps last week. Eph, Sept is a month known to bury gold bulls.

    ReplyDelete
  13. XRT and XLY now pushing to new world record highs.

    The consumer has never been stronger, with cheap money, imploding crude prices, slowly improving economic conditions, and zero inflation as far as the eye can see.

    Stay in the system.

    ReplyDelete
  14. Matterhorn, Sprott, et al will be getting slammed with redemptions next week.

    If only they ran funds that invested in retail and consumer discretionary stocks.

    They would now be driving around in Bentleys and living it up at The Hamptons and greeted by the locals as rock star heroes.

    ReplyDelete
  15. The reality is sometimes simple as one single sentence.
    Eric de Groot was mentioning a year ago or more, that the economy will collapse from the periphery to the core, the core being the dollar.
    That's what we are seeing.
    Now the Euro is at the heart of the storm.
    When the Euro is done and broke, next will be the dollar.
    Meanwhile...I'm happy I stashed some phyz gold, as my purchasing power is also in Euro (not only, Armenia being a dollar area for some reasons, not russian ruble)

    ReplyDelete
  16. "Historic Collapse" now underway in the gold mining sector.

    Brace yourself.

    ReplyDelete
  17. Waiting for GDX to join gold and silver below the 200 day, in 3...2...1...

    ReplyDelete
  18. things are unfolding just as i thought.there will be an awesome opportunity to buy some well positioned miners for an easy trade

    ReplyDelete
    Replies
    1. Lol!

      Thx that was the joke of the day right

      Delete
    2. no kidding

      to da moon baby, wink, wink, nudge, nudge...

      Delete
  19. It seems KWN is running out of bullets LOL

    ReplyDelete
  20. Things are moving fast today.
    Can't and won't update my positions realtime, especially many are short term.
    SP500, careful about 1994 area...if we break it, we could see heavier pressure. SP500 made a double top near 2010, which is within the area of the resistance I was showing on a previous chart.
    So SP500 was expected to bounce down there and it did.
    As long as it does and it doesn't break above 2020, it means the bulls are contained and maybe prices will go back once more towards the support of the higher slope channel, near 1930. If it goes that way, we'll eventually form a rising wedge, and eventually it is likely that the support gives way. Conclusion : I''m keeping my very small short position for the moment, stop loss above the recent highs.


    ReplyDelete
  21. You guys are a bunch of idiots(prophet,Eric ) you don't think you can trade the miners? Never met such a narrow minded group.everything is tradeable.i hope you know you can short them or go long.again offer some insight or something.what are you guys trading if you know it all.you boobs haven't ever offered anything

    ReplyDelete
  22. Read what someone says other than just mocking it.THERE will be a TIME to buy some well positioned miners for an easy trade

    ReplyDelete
  23. Horrific collapse in GDX, 13 million shares dumped in one fell swoop at the bell. TRX all the way down to $2.13, while TSLA is trading at $286.

    Most retail names were unfazed today.

    ReplyDelete
  24. Lots of comments on dollar and gold here today and manipulation and the no manipulation.

    Some forget the Fed of course openly manipulates the bond markets. We all know that, and perhaps the stock market too with QE.

    So there is real manipulation going on in the markets by the Fed. Fully admitted by the Fed.

    With the markets believing the Fed is ending their QE and easy money policies I tend to think that is the main reason gold is going down right now.

    Also one can't forget that the true value of the dollar is measured in the price of gold by central banks. Its always been that way.

    So higher gold would seem to say don't hold the dollar.

    Again not saying manipulation is the reason gold is down here as the Fed exiting QE and saying they are raising interest rates would be the best reason for gold getting sold off here.

    Just pointing out that manipulation is happening openly in the bond and stock markets, so why not other markets too?

    What makes gold so special that it would never be manipulated like the other markets are?

    ReplyDelete
    Replies
    1. Change the record, Barney

      When Bernanke announced QE3, Gold was at $1733; by the time the taper began it was down to $1238. There is little to indicate that - over any realistically tradeable horizon, that QE supports the Gold price

      Since the taper began in 2013 Gold has risen - from 18th December, you will find that on each 18th of the month its price has been higher than it was on 18th previous month, and certainly, the taper itself has not been accompanied by any obvious weakness in the Gold price, and there is consequently little evidence that the slight tightening of monetary policy has undermined Gold

      In the long run, I think debasement of the Money Supply will have severe consequences, but it is readily apparent to anyone who is not obsessed with QE that it is not monetary policy which is driving the Gold price at the present time

      Delete
    2. I did change the record Zhang, took up your constant manipulation topic here.

      One side here says no manipulation in gold and the other side saying there is manipulation in gold.

      For me I don't know if there is manipulation in gold or is not.

      Like I said, the Fed ending QE and saying they will raise interest rates is enough reason for me not to buy gold.

      But when I make the point that some of these other markets are openly manipulated by the Fed you have no comment?

      My point is manipulation in these markets does exist.

      Delete
  25. Barney, who is forcing you to trade in these evil manipulated markets? If you can't stand the heat.....

    - If a Hedge Fund buys a shedload of futures, is that manipulation? If a Government agency or Central Bank pulls off either precisely the same trade, or takes the opposite side if the bargain, is that manipulation?

    - If the market gaps upwards for no particular reason in a way that happens to make you a paper profit, is that manipulation, or is it only when you lose?

    - if, rather than a single hedge fund or Central Bank buying 10,000 futures, a newsletter encourages 1,000 retail investors to buy 10 contracts each, is that manipulation? This may sound fanciful, but Keith Weiner reports recent evidence of just this kind of activity in Silver (which is a much smaller market than Gold)

    - I take it that a Miner hedging the value of its future output, or a jeweler hedging the value of its stock, is just fine and not msnipulative?

    - What about the other side of those trades? - is that manipulative?

    - How about a Bank running carry trade? Long physical, Short Futures? The Bank didnt create the price discrepancy that created the arb opportunity, it just performs a market equalisation service by exploiting it - is that manipulation?

    - Finally, a Central Bank with a shedload of physical Gold in its vaults to support its currency; the USD is going up and a policy decision is taken to hedge the Gold position by shorting Futures, rendering the local economy immune to short term changes in the value of the USD. Is that manipulation, or just what a Central Bank should be doing?

    I think you need to think this through before posting ill-considered comments

    ReplyDelete
  26. I think you made my point for me that manipulation exists.

    Central banks have the most power of all the ones you listed to decide a markets direction.

    If you can guess what they are going to do next you can make good money.

    ReplyDelete
    Replies
    1. every one of PCB's bullet points had a question mark after it

      it is therefore difficult to imagine how his Comment could be construed as "making a point" for anyone

      To quote Einstein - the only difference between Genius and Stupidity is that Genius has its limits

      Delete
  27. Thanks Dan and Lan for exposing these charlatans. Now it is our turn

    ReplyDelete
  28. ...and Steve, PCB, Jasper etc

    ReplyDelete
  29. Barney, I sense you have a very real problem here, in that you seem unable to distinguish the wood from the trees

    In the examples I gave above, the overall position size I was theorizing wad identical - 10,000 futures are not more "powerful" just because a Central Bank trades them rather than a gaggle of retail speculators, and if you really believe this notion, do you by extension believe that the very existence of a Central Bank is manipulative and somehow illegitimate? The Central Bank has a job to do - often enshrined in law. Does that mean that their actions are alwats devious and improper?

    If, following this logic, you really belueve that there are Good Guys (who can never do any wrong) and Evil Evil Banksters (who are always up to no good) then your problems are more general than investment theory, and I really can't help you. Every trade has a counter-trade, and to typify one side as "manipulative" and the other as heroic simply based on the identities of the participants is, at best, naive

    Personally, i really do believe that ALL markets are distorted by bloc interests, pretty much ALL of the time; however, I do not think this is necessarily wilful, collusive or uniquely traceable to one type of market participant. At any given time there are multiple cross-currents influencing every market - what we experience as price dynamics is typically the NET consequence of those dactors, not the result of any individual action

    ReplyDelete
  30. I love this text editor - its like being drunk, without the need for drinking alcohol beforehand....,,,

    ReplyDelete
  31. Dan thanks for the posts today.

    You wonder where oil and gold would be without the political unrest. If a "real" truce is announced in Ukraine... oil and gold could go south. Seems both have both been sensitive to news coming from that part of the world.

    ReplyDelete
  32. Its quite funny, really, this manipulation lark. People tie themselves up in such knots trying to pummel the facts into submission in order to fit their pet theories

    Take the arch-Muppet Edam von Gruyere, spouting off today on Everyone's Favourite website about a forthcoming Swiss referendum. If if passes, he asserts that this will require the Swiss Government to buy 1700 tons of Gold in short order- a trade which I think we can all agree might move the market a little, and make Gold ever so slightly more expensive for the rest of the World to buy

    Some might consider the rapid purchase by a Central Bank of a huge amount of Gold as "manipulation" (though I myself would disagree); however, this is Von Stilton talking here, and of course "manipulation" only ever occurs when the price of Gold falls, and so in this Alice in Wonderland world, such a massive purchase would not only be not manipulative, If the Swiss Gold Initiative is successful, this vote could destroy the artificial paper manipulation of the gold market once and for all.”

    Ah, 'The War to End All Wars' - how very reassuring - far more reassuring than listening to us dunderheads who would have you believe that there are all manner of competing influences going on in parallel. No, Dear Friends, as Von Mousetrapp confidently assures us - "The only reason the metals have not yet started their massive surge is because almost all investors don’t see the risks present in the system". He does, all the other investors don't (which might perhaps remind those of you of a British disposition of Blackadder's Old Sea Dog)

    As with Cheese, so with Gold, and this chap is quite obviously crackers

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/9/5_Great_Danger_Looms_As_Investors_Say_Goodbye_To_Summer.html

    ReplyDelete
    Replies
    1. Mr Gold pumping the very same drivel:


      "Jim,

      Egon says the Gold Initiative to be voted on in Switzerland at the end of November would require the state to purchase upwards of 1,700 tons ($70billion) if it is voted into law.

      That would decidedly have an upward effect on the price of gold.

      CIGA Larry"

      Delete

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