Metals – FX- Indices – update – 24 Feb 2019

Precious Metals: Gold & Silver vs US Dollar, Euro, GBP, Ratio


Risk awareness limits short term opportunity

Technicals show increasing risk in most asset classes. Where risk is unacceptably high we remain underinvested or Out.
Gold recorded new all time highs against Scandies Aussie and CAD. The strength built in the PM markets since our virtual 100% allocation, and still led by Palladium, partly sets the parameters for largely holding the current positions.

Gold/USD

On Wednesday Gold temporarily peaked and diverged on daily risk. This creates a pause in this market and opportunity for a quick short term punt. LT monthly still in comfortable uptrend hence we remain with our original 100% allocation
(LT trend and slow rising risk weight prevails in absence of Weekly and Daily divergence)

Gold/USD Month Week Day Hour
Close 22 Febr Price 1328
(1321)
Trend Direction Up (Up) Down (Up) Down (Up) Down
Risk Weight 55-70 (55-75) 90-95 (90-95) 65-80 (60-65) 55-65
Allocation 100% (100%)

Silver/USD

So far 2 attempts this year to break this multi year resistance have failed. With Monthly risk still in comfortable low risk uptrend suggests it is a matter of time. When it happens this break could generate a quick turn in favor of silver. No change in allocation.

(A 14 year support line broke in Aug 2018 at 15.67. That same line now sits at 16.11 and is likely to broken to the upside again due to a developing divergence between daily and Weekly supported by the Long term monthly trend with a low yet slow rising risk weight. We remain very positive on Silver vs USD)

Silver/USD Month Week Day Hour
Close 22 Febr Price 15.89
(15.75)
Trend Direction Up (Up) Down (Down) Down (Down) Down
Risk Weight 35-50 (30-50) 80-85 (80-85) 60-65 (30-35) 55-75
Allocation 100% (100%)

Gold/EUR

We have decided to stay fully allocated until Daily Short term price to risk weight shows clear divergence. Price territory still offers much support to stay with the LT uptrend that started on Oct 2018.

(High risk weight across time frames is likely to result in a short term correction relatively soon. A 14 year supporting trend line was broken in Nov 2017 at 1100. That trend line is now short term resistance at 1180. If Daily trend turns south we will lower the position by 50%. If shortly thereafter a major divergence develops between Hourly (low risk weight) and Daily (high risk weight) at that time we will return to fully invested. The objective is to protect some profit in case this market turns down for a relatively longer period)

Gold/EUR Month Week Day Hour
Close 22 FebrPrice 1170
(1170)
Trend Direction Up (Up) Down (Up) Down (Up) Down
Risk Weight 80-90 (80-95) 90-100 (95-100) 70-80 (80-90) 60-70
Allocation 100% (100%)

Silver/EUR

The narrative here is similar to Gold vs Euro. The LT trend up that started in Nov last year prevails and still holds.

(The price consolidation since one month continues. ST risk weight could develop a divergence vs MT. We stay with full silver vs Euro)

Silver/EUR Month Week Day Hour
Close 22 FebrPrice 14.00
(13.95)
Trend Direction Up (Up) Up (Up) Down (Down) Down
Risk Weight 45-65 (45-65) 85-90 (85-90) 60-75 (50-60) 65-80
Allocation 100% (100%)

Gold/GBP

The ST picture looks a little weak, but there is no sharp divergence calling an intermediate top. We stay fully allocated (for now).

(High risk weight in M, W and D time frames is not a reason to top pick this market. Even though ST Daily turned down there is no clear divergence calling a short term top. The 15 year chart pattern calls for a MT high above 1070. We stay with the current allocation at 100%)

Gold/GBP Month Week Day Hour
Close 22 Febr Price 1015
(1022)
Trend Direction Up (Up) Up (Up) Down (Down) Down
Risk Weight 75-90 (80-90) 80-85 (75-80) 55-70 (85-90) 15-25
Allocation 100% (100%)

Silver/GBP

Daily price to risk shows a weak divergence fron a medium risk level. We stay fully allocated.

(We stay with fully invested position as LT anhd MT trends prevail)

Silver/GBP Month Week Day Hour
Close 22 Febr Price 12.17
(12.24)
Trend Direction Up (Up) Up (Up) Down (Down) Down
Risk Weight 45-65 (45-65) 75-80 (75-80) 50-65 (65-75) 30-50
Allocation 100% (100%)

Gold/Silver Ratio

Hourly ST could drive the ration a little higher again, but the MT weekly looks quite tired after 2 months of upward zigzag favoring silver. We stay 50/50 in the ratio.

Comment on Palladium/USD. On a log chart this pair looks rather extended and is in very high risk, speculative, territory. OThe LT Monthly is showing an unusual but also clear price to risk weight divergence. A quick break from this steep slope could drive the price down very rapidly toward the LT median of around 800. A price well above gold has no fundamental justification either as a hard asset or industrial use.

(Strong performance of Gold vs Silver but the trend and risk weight levels suggests renewed strength for Silver. We stay at 50/50)

AU/AG Ratio Month Week Day Hour
Close 22 Febr Price 83.21
(83.60)
Trend Direction Down (Down) Up (Up) Down (Down) Down
Risk Weight 65-75 (65-75) 25-35 (25-30) 45-60 (80-85) 20-25
Allocation 50% AG (50% AG)

FX: EUR/USD, USD/CHF, GBP/USD, GBP/EUR, Bitcoin

Euro/USD

The technical picture validates a weaker dollar, but the Euro finds it difficult to follow that natural price development due to low interest rate expectations. Further Euro weakness is likely to develop a divergence in the medium term weekly time frame driving fairly strong technical support. Long dollar positions to remain fully hedged.

(A 4 month consolidation with a 1.1210 - 1.1625 range continues. Monthly LT and Daily ST risk weight indicate that the support level will likely hold followed by another rally which eventually should turn the dollar down into a longer term down trend. Risk is clearly for the dollar to weaken and we position accordingly)

EUR/USD Month Week Day Hour
Close 22 Febr Price 1.1340
(1.1290)
Trend Direction Up (Up) Down (Down) Up (Down) Down
Risk Weight 10-15 (10-15) 25-40 (40-50) 45-55 (10-15) 45-50
Allocation 100% (100% hedge)

USD/Swiss franc

No Change. Keep long dollar exposure fully hedged.

(Dollar looks toppish vs CHF whilst bearish divergence Risk weight to Trend is an important parameter to remain fully hedged on long dollar positions whilst short dollar positions can safely be covered on due date)

USD/CHF Month Week Day Hour Close 22 Febr Price 0.9990
(1.0050) Trend Direction Down (Down) Up (Up) Down (Down) Down Risk Weight 75-80 (75-85) 65-75 (60-70) 25-40 (75-85) 25-35 Allocation 100% unch

British Pound/USD

A stronger cable as expected last week has driven a wide gap between low risk LT Monthly and high risk MT weekly and ST Daily rapid risk advance. Technically cable looks somewhat vulnerable and we are changing our hedge recommendation to 50% cover on long dollar exposures, from 100%.

(Very short term weakness (Hourly) followed by a stronger Cable is the most likely risk scenario. Low risk weight monthly gives good support to stay with fully hedged short cable exposures)

Cable Month Week Day Hour
Close 22 Febr Price 1.3050
(1.2885)
Trend Direction Up (Up) Down (Down) Down (Down) Up
Risk Weight 15-30 (15-25) 65-75 (65-75) 75-80 (10-15) 75-80
Allocation 50% (100%)

British Pound/Euro

A similar picture develops as with Cable, although the LT Monthly still points upward in a stronger pattern. For now we stay with the 75% sterling hedge on shorts.

(The LT Monthly uptrend with medium risk and low risk Daily uptrend favor a minimum of 75% hedge on short GBP)

GBP/EUR Month Week Day Hour
Close 22 Febr Price 1.1500
(1.1400)
Trend Direction Up (Up) Up (Down) Up (Up) Down
Risk Weight 50-65 (45-55) 75-80 (70-75) 85-90 (25-35) 80-85
Allocation 75% (75%)

Bitcoin/USD

Last weeks strength has driven a bearish gap between ST and MT. High volatility likely to continue. Current risk is to expect weakness this coming week. We stay out of this market entirely but it's interesting to closely follow its further development.

(This volatile coin looks a little more favourable on Hourly and Daily but building divergence vs MT Weekly. We understand that a large amount of BTC is waiting to be disposed off. The difficulty being to realize some significant profits vs fiat currency, even at current level, using third party exchanges. It appears much more difficult to use BTC as a means of exchange for financial services, hence hard to predict where volume will develop again. Still high risk as a result)

Remaining 'opening up' gap still to fill at 2828. We exclude weekend action to determine opening gaps as major players are not participating in size.
If this market is poised to turn from extremely overbought (Dec 2017) to completely oversold, it doesn't appear to be finished.)

BTC/USD Month Week Day Hour
Close 22 Febr Price 3965
(3601)
Trend Direction Down (Down) Up (Up) Down (Up) Down 24/2
Risk Weight 0-5 (0-5) 10-20 (10-15) 70-85 (60-70) 15-20
Allocation 0% (0%)

INDEX: US30, S&P500, Dollar Index, Brent crude oil

Dow Jones

We are currently at the level where it became extremely high risk to participate in this index. The present technical picture shows high risk in Medium and Short term time frames.
If we could short we would, but against risk principle of ever being short a major asset class. So we stay out.

(The persistant rally can clearly be seen as a major opportunity loss. To date, LT risk called for staying out. We now see an inter-monthly change of LT trend with medium risk weight whilst Daily ST risk weight vs trend shows a 3rd bearish divergence putting much caution on ST direction. Because MT Weekly is in relative high risk territory this market must not be touched. Better safe than sorry against many odds unfortunately)

US30 Month Week Day Hour
Close 22 Febr Price 26031
(25883)
Trend Direction Up (Up) Up (Up) Down (Up) Up
Risk Weight 55-60 (55-60) 80-90 (70-80) 90-95 (85-95) 95-100
Allocation 0% (0%)

Standard & Poor 500

Same picture as Dow. No position.

(S&P is a near perfect copy of DJII. The persistant rally can clearly be seen as a major opportunity loss. To date, LT risk called for staying out. We now see an inter-monthly change of LT trend with medium risk weight whilst Daily ST risk weight vs trend shows a 3rd bearish divergence putting much caution on ST direction. Because MT Weekly is in relative high risk territory this market must not be touched. Better safe than sorry against many odds unfortunately)

S&P500 Month Week Day Hour
Close 22 Febr Price 2793
(2775)
Trend Direction Up (Up) Up (Up) Down (Up) Up
Risk Weight 50-55 (45-55) 80-90 (75-80) 85-95 (90-95) 70-75
Allocation 0% (0%)

Dollar Index

NO change from last week. Dollar long exposures to remain fully hedges with exception of Cable as per above.

(Future dollar weakness is best made visible looking at the MT Weekly dollar index with trend risk turning up in medium risk weight which generally creates a big bearish divergence setup and confirming the High risk weight LT trend downward. No change in 100% long dollar cover)

USDIndex Month Week Day Hour
Close 22 Febr Price 96.50
(96.92)
Trend Direction Down (Down) Up (Up) Down (Down) Up
Risk Weight 80-90 (85-90) 50-60 (40-50) 50-60 (85-90) 25-30
Allocation 100% unch

Crude Oil

Technically expect a little bit of strength first trading coming week, Otherwise both Daily ST and Weekly MT are likely to develop strong joint divergence for another secondary round of weakness. We stay out of the oil market.

(In spite of strong performance last week price development still indicates a countertrend rally in a poptential LT downtrend that started early October. We do not short but stay out as initiated last year)

Brent Month Week Day Hour
Close 22 Febr Price 66.90
(66.39)
Trend Direction Up (Up) Up (Up) Down (Up) Down
Risk Weight 25-30 (25-30) 55-75 (45-55) 90-95 (85-95) 0-5
Allocation 0% (0%)

Posted in A - All Financial Blogs | 2020 Forecast.

Leave a Reply