Metals – FX- Indices – update – close 10 May 2019

From 10 May, 2019 we remove the Hourly risk weight as this intra-day indicator only serves to fine-tune entry/exit timing of Short Term activity. Often the action would need completion in out of timezone hours. Instead we will simply alert on this possible timing in the Short Term (Daily) analysis.

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

Gold/USD Month Week Day
Close 10 May: 1285 (1279)
Trend Direction Down (Down) Up (Down) Down (Up)
Risk Weight 60-70 (60-70) 15-25 (10-20) 65-75 (25-30)
Allocation 75% (75%)

The Weekly MT trend and risk weight looks to have a potential major bearing on future price travel. Reason is that the Weekly risk weight has fallen sharply relative to the January high and the mid 2018 lows whilst turning up. This is a potentially very bullish picture. If Gold breaks and closes above the MT resistance line at 1360, Gold's allocation relative to total assets should be increased as well. For now no change but seeking to increase again to 100% if the scenario unfolds.

(No change from last week although the call to re-enter came a little early. Friday's rally from Thursday's May 2nd risk weight divergence low should again have set support for Gold around current level)

Silver/USD Month Week Day
Close 10 May: 14.72 (14.88)
Trend Direction Down (Down) Up (Up) Down (Up)
Risk Weight 30-40 (30-40) 10-20 (10-20) 40-55 (25-30)
Allocation 75% (75%)

Last week's rally towards 15.00 was followed by another attempt to push Silver down losing 50% of the advance. Silver investors require a long breath which eventually will pay off as the metal will not just lose liquidity at these sub production cost levels, but will eventually return to long equilibrium relative to Gold. This makes Silver an even stronger protection against possible inflation. No change.

(The Thursday May 2nd low also shows risk weight bullish divergence on the Daily time frame. In spite of a tyring string of downward movements in Silver the past three months this market is actually showing evidence of strong support around current levels. The weekly time frame trend turned Up on Friday 3rd May one full dollar above the October 2018 low. No change)

Gold/EUR Month Week Day
Close 10 May: 1143 (1141)
Trend Direction Down (Down) Up (Down) Down (Down)
Risk Weight 70-80 (70-80) 15-25 (15-25) 55-70 (40-50)
Allocation 75% (50%)

The September 2018 LT low was reached with very low risk weight and a price level well above the previous LT low in Jan 2014. Similar to Gold vs US$ the weekly flag formation and a fair amount of risk weight divergence vs Monthly LT leans more towards an upcoming rally which should take the price to new 2 or 3 years highs. We will increase the allocation back to 75% at opening Monday morning.

(The risk picture looks more bullish now too for Gold vs EURO. We will re-allocate into full position if a Daily close above 1155 is set and the trend turns Up again. No change in 50% allocation for now)

Silver/EUR Month Week Day
Close 10 May: 13.10 (13.28)
Trend Direction Down (Down) Down (Up) Down (Down)
Risk Weight 40-55 (45-55) 15-20 (15-25) 30-40 (25-30)
Allocation 75% (75%)

A break and close above 13.65 will turn this market bullish. Daily Stochastic, RSI and MACD confirm the building of a ST bottom. Price may even drop just below 13.00 but we stay with our 75% allocation.

(Initial weakness last week set a 4 month low ending slightly stronger with a risk weight divergence on Daily time frame. This is a bullish signal and should give intermediary support to price. No change)

Gold/GBP Month Week Day
Close 10 May: 988 (970)
Trend Direction Down (Down) N (Down) Up (Down)
Risk Weight 65-70 (60-70) 20-25 (15-25) 55-65 (10-25)
Allocation 75% (75%)

The zig zag price pattern continued, this time in favor of Gold again. The weekly indicators are, just like the other Gold pairs, pointing towards a near term rally. No change.

(This pair is in the process of finishing a short term downtrend and was hit last week as a result of the relatively strong Pound vs USD. The setup is for a rally starting soon and we recommend no change to the 75% allocation to Gold within the maximum Gold allocation model)

Silver/GBP Month Week Day
Close 10 May: 11.35 (11.29)
Trend Direction Down (Down) Down (Up) Down (Down)
Risk Weight 30-45 (30-45) 15-20 (15-20) 35-45 (10-25)
Allocation 75% (75%)

Silver held better this week due to general Sterling weakness. Risk does not appear strongly in favor of Silver vs GBP, still seeking firm direction, but given the position of Silver vs EUR and US$ we stay with the 75% allocation.

(Our re-allocation was too early. The 2% drop last week was a sudden change of trend due to a strong GBP vs USD, the reason for which could be several. Yet this market too appears to be closer to a bottom and we recommend no change in the 75% allocation within the gold class)

GOLD/SILVER Ratio Month Week Day
Close 10 May: 86.80 (85.40)
Trend Direction Up (Up) Up (Down) Up (Down)
Risk Weight 85-95 (80-90) 75-85 (75-85) 65-80 (65-75)
Allocation 50% AG (50% AG)

Silver against closed at a new multi decade low by a small margin and is just 4% below the 1991 all time high for this ratio at 91. At these already extreme levels and relatrively high risk weight in all time frames we are happy to stay with the 50/50 allocation.

(Few typical commodity markets have shown more resilience than this ratio as it reached a new 15 year high but again moved back into the range of the past 60 days. As all markets return to their equilibrium some day, staying with the 50/50 allocation within the metals space)


EUR/USD Month Week Day
Close 10 May: 1.1230 (1.1200)
Trend Direction Down (Down) Up (Down) Up (Down)
Risk Weight 5-10 (5-10) 15-25 (15-20) 55-70 (10-15)
Allocation 100% (100% hedge)

Trend and risk weight continue to support holding on to fully covered long dollar exposures.

(The Euro rose last week before dropping away on again Friday closing in mid range. Risk weight levels really favors a full hedge of long dollar exposures. No change)

USD/CHF Month Week Day
Close 10 May: 1.0110 (1.0190)
Trend Direction Up (Up) Down (Up) Down (Down)
Risk Weight 80-90 (85-90) 75-85 (80-85) 40-55 (70-80)
Allocation 100% unch

No change.

(Risk weight levels favor a fully hedged long dollar exposure. No change)

GBP/USD (Cable) Month Week Day
Close 10 May: 1.2990 (1.3168)
Trend Direction Down (Down) Down (Down) Down (Up)
Risk Weight 30-35 (30-40) 35-45 (40-45) 40-55 (65-80)
Allocation 70% (70%)

Cable appears to continue hovering around the 1.30 level. The long dollar hedge based on risk weight is a choice to simply remove risk of a dollar depreciation. Both risk weight and trend favor a lower allocation of 50%, but as the US$ looks slightly more vulnerable against other majors, we stick with the 70% hedge on short Cable transaction exposures.

(In spite of last week's strong rally GBP still looks a little higher risk than other majors and we hold our 70% long dollar hedge recommendation)

GBP/EUR Month Week Day
Close 10 May: 1.1570 (1.1755)
Trend Direction Down (Up) N (Up) Down (Up)
Risk Weight 75-80 (80-85) 60-70 (65-70) 30-45 (85-95)
Allocation 50% (50%)

Logically the perceived weaker GBP than other majors vs USD would show in the GBP/EUR spread and it does. This pair looks to continue hovering within a 1% range at current levels. We simply advise a 50% hedge on long or short exposures.

(Strong GBP/USD resulted in a similar rally vs EUR trading at the highs of the last 60 days. Risk weight levels are also high and we stay with our 50% hedge either side)

Close 10 May: 6375 (5770)
Trend Direction Up (Up) Up (Up) Up (Up)
Risk Weight 15-30 (15-25) 85-95 (85-95) 90-95 (70-85)
Allocation 0% (0%)

Following Fridays close BTC jumped another 10%+ during the weekend at well over USD 7,000. This market is controlled by just a few parties or even one and seems to be rallying gold diggers to support the ever present overhang of long BTC positions that simply cannot be sold for compliance (integrity of source of funds) related reasons. It is small volume and outside normal trading hours. The rally is great for 'old' long position provided holders have a facility to trade back to fiat, which often isn't the case. We do not participate in this high risk controversial crypto commodity.

(10% rally again shows the incredible volatility of a controlled crypto asset. This market is now entering the low end of the range that has been hovering around 6,000 since Febr 2018 and still 70% off the highs with continued high risk weight levels in ST and MT time frames. Crypto will start to play a much more significant role in financial markets in the not too distant future, but we expect BTC to tank once more before it finds more serious support again. No change)

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.

INDEX: US30, S&P500, Dollar Index, Brent crude oil
US30 Month Week Day
Close 10 May: 25942 (26505)
Trend Direction Up (Up) Down (Down) Up (Down)
Risk Weight 80-90 (80-90) 80-90 (90-100) 25-35 (45-60)
Allocation 0% (0%)

The DJII still looks vulnerable although last weeks drop and Friday's turnaround may push the index a little higher early in the week based on a bit of bullish divergence between ST (Daily) and MT or LT. Risk weight and trend on MT supports a zero risk policy. No change.

(High risk weight in ST to LT timeframes continues to send warning signals as it has done for the past year. Hawkish guidance is no reason to change a position if technical market risk is highly evident in MT and LT time frames. No change)

Standard & Poor 500 Month Week Day
Close 10 May: 2881 (2945)
Trend Direction Up (Up) Down (Down) Up (Down)
Risk Weight 80-90 (80-95) 90-95 (95-100) 25-35 (50-65)
Allocation 0% (0%)

Friday was an outside low and close and would support a further rally into the week or even a bullish reversal. However, the price to risk weight bearish divergence in the LT (Monthly) timeframe must not be ignored whilst the Weekly risk and trend favor a zero risk approach. No change.

(S&P obviously has similar characteristics. No change here either although any minor divergence between ST and MT is was has been causing the BTFD movements again. Risk remains very high and risk is what we prefer to avoid)

USD Index Month Week Day
Close 10 May: 97.32 (97.48)
Trend Direction Up (Up) Down (Up) Down (Down)
Risk Weight 85-95 (85-95) 75-80 (80-85) 25-40 (50-60)
Allocation 100% (100%)

The Weekly trend turned down whilst the Daily shows bottoming action. The USDollar still shows to seek a top technically. Hence Risk favors a fully hedged long dollar exposure vs the basket of other major currencies.

(The dollar rally wants to continue but shows hesitation every time we see a new high.
This drive the risk weight to remain relatively high and therefor requires a fully hedged long dollar position. Slipping above the 9 months trading range the past two weeks, the dollar fell back again last week, rallied and dropped on Friday May 3rd seeking direction.
Short term we can see another attempt to rally into the low 98.00 but risk remains high, hence no change)

Brent Month Week Day
Close 10 May: 70.86 (70.78)
Trend Direction Up (Up) Down (Down) Up (Down)
Risk Weight 45-55 (45-55) 70-85 (80-90) 20-30 (20-25)
Allocation 0% (0%)

Technically risk weight and trend are neutral and slightly bullish very short term. In order to participate and invest in oil again we require a no brainer bullish picture which we have not seen yet. MT (Weekly) is in a downtrend whilst Monthly hesitates. Not favourable. No change.

(Triple divergence in Daily timeframe eventually drove the oil space lower last week and 7% below the high of April 25. Technically we must remain highly suspicious of the rally this year and cannot yet recommend a low risk position into this market. No change)

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Posted in A - All Financial Blogs | 2021 Forecast.

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