Metals – FX- Indices – update – 4 Nov 2018

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

Gold / USD

USD movement vs majors determined direction during the week. A strong dollar caused early weakness in metals during the past week with a reversal in second half. Weekly is moving into higher risk territory but still strong and up. October closed up on monthly. With Daily and hourly neutral we maintain 80% allocation. (The relatively strong dollar seems to be responsible for holding back a slightly more rapid advance of Gold/USD. The strong weekly uptrend and an upturning Monthly trend normally also drives ST momentum. No Change in 80% bullish risk allocation).

Gold/USD Month Week Day Hour
Nov 2 close 1232
(1233)
Trend Direction  Up (Up) Up (Up) N (N) N
Risk Weight 20-25 (20-25) 70-80 (55-70)  50 (85) 45
Allocation 80% (80%)

Silver / USD

Same picture for silver reacting to USD strength early in the week and reversing  sharply Thursday Friday. From risk perspective Silver does not yet give strong indication. We raise allocation to 40% as daily and weekly are in an uptrend and monthly turning Neutral at low risk weight. (Still very much a sideways market. November is likely to determine a change of trend and possible higher risk allocation. Given positive risk for gold we keep allocation at 30%)

Silver/USD Month Week Day Hour
Nov 2 close 14.71
(14.65)
Trend Direction  N (Down) Up (Up)  Up (Down) Down
Risk Weight 15 (10-20)  35-40 (30-35)  40-50 (70) 15-30
Allocation  40% (30%)

Gold / EUR

Monthly risk weight widened in uptrend showing potential strength. Weekly continues uptrend. With daily and hourly in short term downtrend we maintain allocation. (Strong weekly uptrend leaves primary risk for prices to still move higher ST. Divergence between hourly and daily should see prices higher beginning of the week. No allocation change.)

Gold/EUR Month Week Day Hour
Nov 2 close 1075
(1080)
Trend Direction Up  (Up) Up (Up) Down (N) Down
Risk Weight  20-35 (10-20) 65-75 (50-70) 60-70 (90-95) 50-70
Allocation  75% (75%)

Silver / EUR

Monthly trend change happened with weekly firming and daily turning back up. Increase allocation to 45% from 35%. (Monthly leaning towards a trend change. Hourly diverging from Daily. Weekly uptrend stronger. Increasing allocation to 35%)

Silver/EUR Month Week Day Hour
Nov 2 close 12.91
(12.85)
Trend Direction Up  (Down)  Up (Up)  Up (Down) Down
Risk Weight  15-25 (10-20) 45-50 (35-45) 55-60 (60-65) 30-40
Allocation 50% (35%)

Gold / GBP

With Monthly now in firmly established uptrend from low risk weight and Weekly continuing strong uptrend, the down ward change in Daily is no reason to change the 70% allocation. Still risk of swift reaction to near 925 but smaller position only as intraday type trading. (Prices moved steadily higher last week closing on the low of the day on Friday after strong overbought ST. That strong overbought is now being alleviated following a 9 pound drop from highs. This may continue a bit into Monday after which the strong Weekly and stronger Monthly direction may show further advance. Possibility still that a quick 3% drop fills the 15 October gap open. No change in allocation at this moment)

Month Week Day Hour
Nov 2 close 951
(961)
Trend Direction Up (Up) Up (Up) Down (N) Down
Risk Weight  20-35 (15-20) 65-80 (50-70)  55-70 (95) 75-80
Allocation 70% (70%)

Silver / GBP

Change of Monthly trend confirmed with Weekly continuing uptrend from low risk base. If Daily turns back up following hourly we increase allocation to 70% (Strong up trend continued last week even though risk picture less rosy. We stay with 40% allocation as ST downtrend direction from a high of 11.50 not finished)

Silver/GBP Month Week Day Hour
Nov 2 close 11.33
(11.41)
Trend Direction Up (Down) Up  (Up)  Down (N) Down
Risk Weight 15-20 (10-15)  35-45 (30-35)  50-60 (90) 25-35
Allocation  (50%)

Gold / Silver Ratio

We now need the weekly to change trend direction to gove silver clear overweight. This could be a mid week event or ratio weakness can create another divergence short term. It is not yet clear, thus risk allocation remains flat at this moment. (At the start of a precious metals up trend vs USD, Silver more often than not takes a lead. That is still not the case and statistically makes the case for PM longs slightly weaker. Statistics however are what they are, just statistics. Even though the ratio is historically high it may remain high for a while longer. Although tempting to pick a top, No silver overweight as yet from a risk perspective. Both ST and MT trend direction needs to indicate exhaustion first)
All time high: 1941 = 97, 1991 = 90

AU/AG Ratio Month Week Day Hour
Nov 2 close 83.51
(83.87)
Trend Direction Up (Up) Up (Up) Down (Up) N
Risk Weight 75-85 (65-75) 70-80 (65-75)  60-65 (80-85) 70-75
Allocation Flat

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

Euro / USD

USD strong early in the week and reversing back end. Monthly and Weekly look to want to run out of steam at low risk weight whilst daily turned up. Long dollar positions should be hedged 70%, short dollar positions 30%. If Daily diverges vs Weekly in coming week the allocation may temporarily be reduced again.(USD has pushed higher last week and still shows more strength than weakness from a risk perspective. Stay with being 40% hedged on long Euro/USD positions expecting a trend change within a one or two months as LT trends drop to oversold criteria)

EUR/USD Month Week Day Hour
Nov 2 close 1.1384
(1.1400)
Trend Direction  Down (Down)  Down (Down) Up (Down) N
Risk Weight 10-20 (15-30) 25-35 (35-45) 15-20 (10-15) 20
Allocation 70% hedge
(40% hedge)

British Pound / USD

Brexit mania is influencing the USD common relationship. More volatility expected in both directions. We prefer to move the allocation of a  hedge against short cable back to 70%. (Cable followed general dollar strength and may continue ST and LT. This is different from last week's risk position and we would reduce the short sterling hedge to 60% from 70%)

Cable Month Week Day Hour
Nov 2 close 1.2955
(1.2815)
Trend Direction Down (Down) Down (Down) Up (Down) Down
Risk Weight 10-20 (15-20) 40-55 (50-60) 25-40 (5-10) 10-15
Allocation 70% (60%)

USD / Swiss franc

Monthly trend direction turned back up, Weekly becoming higher risk whilst both Daily and Hourly in higher risk weight down trend. No change. Long dollars should be hedged at 70%. (This major cross moved up slightly in line with general dollar strength. Due to divergence between hourly and Daily risk weight a very ST a reallocation to 50% seems low risk. A move above par warrants moving back to 70% hedge on long USD positions.)

USD/CHF Month Week Day Hour
Nov 2 close 1.0025
(0.9960)
Trend Direction Up (N) Up (Up) Down (Down) Down
Risk Weight 75-85 (70)  80-85 (70-80) 75-90 (75-80) 75-85
Allocation 70% hedge
(70% hedge)

British Pound / Euro

Brexit jitters. After early weakness a 2% reverse on Oct 31. That reverse however looks weakish with weekly still in downward trend. Stay with 60% hedge on short sterling positions. (Market briefly moved up to 1.1365 early in the week following renewed GBP pressure with weekly trend direction now down. ST GBP looks lower risk. Short GBP position increased to 60% hedge).

GBP/EUR Month Week Day Hour
Nov 2 close 1.1382
(1.1245)
Trend Direction Up (Up) Down (Down)  Up (Down) Down
Risk Weight 55-60 (50-55) 65-75 (65-75) 45-70 (5-20) 45-50
Allocation 60%
(50%)

Bitcoin / USD

Daily trend turned up fairly sharply but without much price change. Weekly also turned up at the same risk weight level. Spec territory only. With hourly in higher risk weight range, weekly trading trend places with previous week and monthly still in same weak downtrend one simply cannot risk a long position at this stage.

(Last week: Look at this hourly picture of manipulated prices.

The above picture from the previous week shows the manipulation which is cause for concern as liquidity is in the hands of very few larger players. Last week very little change inside a narrow price range. Although all time frames show a near oversold condition, the highest risk is for one of these times frames to extend downward due to liquidity concerns. We stay out of this asset class until a firm buying signal can be determined)

Potential gaps to fill at 5838, 4330 and 2828.
If this market is poised to turn from extremely overbought (Dec 2017) to oversold, it doesn't appear to be finished.

BTC/USD Month Week Day Hour
Nov 2 close 6432
(6528)
Trend Direction Down (Down) Up (Down)  Up (Down) Down
Risk Weight 20-25 (20-25) 20-25 (25-30)  40-50 (20-35) 70-75
Allocation 0% (0%)

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

Dow Jones

Whilst the monthly remained slightly up on Oct 31, we currently see a down trend. Weekly is still down and the reversal from the low 24k's on 29 Oct is developing too rapidly. This may continue into the the week but carries higher risk. Not worth putting on even a short term smaller long position based on this risk weight picture. No change in allocation. (No change; 0% allocation. All time frames breath more potential weakness. The strong downtrend on weekly and Monthly turning N means the risk of continuation is evident. Daily risk therefor could remain low for (quite) a while longer. Even minor long positions would be considered speculative)

US30 Month Week Day Hour
Nov 2 close 25270
(24688)
Trend Direction Down (N) Down  (Down) Up (Down) Up
Risk Weight 75-85 (80) 25-35 (25-50) 50-65 (10-15) 20-30
Allocation 0% (0%)

Standard & Poor 500

Exactly similar picture again as DJII. Monthly was Neutral on Oct 31 and is now down in a divergence position versus the highs beginning of 2018. It shows that the stock market is losing momentum quickly and carries a high level of risk. No change in allocation although a further short term technical rally may develop early in the week. US elections are of short term influence only. (The same DJII analysis is applicable to S&P as risk of a major or rapidly extended move down is still possible. If the Monthly trend is down on 31 Oct any ST long positions can only be seen as speculative based on clear  ST oversold risk conditions. That is not yet the case)

S&P500 Month Week Day Hour
Nov 2 close 2723
(2658)
Trend Direction  Down (Down) Down (Down) Up (Down) Up
Risk Weight 75-85 (80-85) 25-35 (20-40)  50-65 (10-15) 20-30
Allocation 0% (0%)

Dollar Index

Even though Trends are up long term, the broader dollar index is shows slowing momentum in Monthly with Weekly possibly diverging because Daily continues down and Hourly high risk short term. Long dollar positions across the index spectrum should be covered 70%, up from 60%  (USD index continues to show short term bullish risk divergence vs MT and LT. Short dollar hedge allocation 60%)

USDIndex Month Week Day Hour
Nov 2 close 96.50
(96.30)
Trend Direction Up (Up) Up (Up) Down  (Down N
Risk Weight 80-90 (70-85) 65-75 (55-65) 65-80 (85-90) 80-85
Allocation 70% (60%)

Crude Oil

Monthly bearish divergence on risk weight is now a fact. With Weekle down and Daily in Very low risk expect a short term rally that is unlikely to drive a major turn back up for this market. Given increased volatility and daily very low risk a 20% allocation could be taken short term but this might need to be reversed intra week. Hence no change in our weekly update model. (Oil, like USD is building ST bearish divergence supporting MT risk of further downward move. No change in 0% allocation to this asset class. (Lots of media jitters. With weekly in strong downtrend, Monthly in high risk and daily reaching low risk, it is too early to consider a small allocation on the long side short term)

Brent Month Week Day Hour
Nov 2 close 72.65
(77.70)
Trend Direction Down (N) Down (Down) Down (Up) N
Risk Weight 70-85 (85-90) 40-55 (55-70)  0-5 (10-20) 40
Allocation 0% (0%)

Posted in A - All Financial Blogs | 2020 Forecast.

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