Euro - Hammer and Bull

The Euro completed a 61.8% retracement and bounced right back forming a hammer and a Engulfing bull Candlestick patter on the chart. Wave 2 down for the Euro should now mostly be complete. This should mean that the dollar tops and starts to fall as well. Wave 3=1 points to 1.10 as the next level for the fractal. Yesterdays low of 1.052 should now be an important low.

Flasback 2007

We maybe at a point where the US or Developed markets and EM or Developing markets diverge from each other strongly for a while. If not on an absolute basis then on a relative basis. And here is why. A falling dollar is not always good for the US/DM combine as the rising dollar meant rising flows to the US and falling Euro Yen etc was a stimulus to the other economies. Now when the dollar falls however it means stability for the EM/ASia/DevM combine as their debts are no more at currency risk and many are commodity producers and will do well when commodity prices are r, ising.

-Here is a combined chart of 2007-2008 that ads historical perspective. When the US topped in Oct 2007, the high from where the Great Financial crisis followed. Did all world market top there and then. No they did not. The only reason I can think of is that the dollar as shown on this chart was falling till April and stayed down there till June before turning up long term. That period therefore saw India still heading higher till Jan 2008, and Commodity producers like Brazil Russia or Canada continue to all time highs into May 2008 [thanks to rising Oil among others]. Gold prices too rose for most of this period. The point of this chart is to show you that markets can diverge if the reasons arise.

So put that into the current scenario where most commodities are rallying. Another dip in the dollar should convince most that the trend for the dollar has also changed. Then the falling dollar would push up EM/Asia/DevM currencies. But at the same time also continue to push up commodity prices. But it may not be good for the US. Am not sure whether it will be pure hyperinflation or a touch of stagflation at that point. But what it would result is in the divergence in the performance of these markets with the Non Developed market space outperforming, the exact opposite of what we say in 2014-2015. This could continue to the point where interest rates rise far enough to hurt everyone. And if they remain behind the curve then well, it will be a historic divergence between these asset classes.

The arrows on the Dow [DJIA] chart show where other markets made their tops in the months that followed.

BGMI

When you look at this index you get an idea of the History of Gold mining. The BGMI or Barrons Gold Mining Index shows its bull market from the 19640's to 1982. It was long. The surprise to many would be the sharp decline in the 2010-2014 period given that Gold prices itself did not fall that much. So you were getting gold miners at 2001 prices [not yet they have moved up now]. The real question to ask is will another long term bull market now begin! The prices from 1982 fit a nice channel.

USDINR

The Monthly chart of USDINR is below and the currency pair touched the 20 month average recently [red dotted line]. This average has worked as a support since 2011 so will it break now?. On other EM pairs like the BRL, the USDBRL has not only broken the 20 month average but is on the verge of breaking the 40 month average as well. That is how weak the dollar is on the pairs. However in 2008 the RBI came to the rescue and the pair did not break the 38 level when the dollar was in its previous bear market. Will they hold this pair from dropping? It can but if it does not then we will end up at near 64 at the lower Bollinger band. A Bollinger band is 2 standard deviations below the 20dma.

Crude

Crude remains in a tricky spot. A tight range and indicators whipsawing both ways. Once again attempting to start a move up with the 20dma at 53 holding for the last few days. A move above 54.34 would be the first sign of strength building.

Copper

Copper is back at the 20dma at 2.684, this level should hold if the next move higher is to start right away. Crucial for the short term.

Dollar Index

The Dollar index has formed a head and shoulders top like formation. The right shoulder is a wave II bounce back that ended with an inverted hammer candle pattern. Wave II is an expanded flat wave pattern. Wave III down should test the neckline at 99.10 and on a close below it we should head to the next swing level of 96.

US 10 year T Notes

The US 10 year note has retraced all the recent gains, but should have bottomed. In English bond yields are likely to fall in the US near term. It only means that wave iii did not start. Wave ii is a flat that completed yesterday and again we should attempt a third wave rally above the neckline on bonds. Rising bonds = falling yields. 

Silver

Unlike gold, Silver is seeing a slow and steady advance with daily ups and down. However having broken out of the falling channel the objective of the breakout is near 19.50$. This is based on measuring the size of the channel and projecting it above the breakout point. Simple. Note the RSI on the top half of the chart is just below the 70 mark that is usually considered overbought. This is an interesting point for silver because it maybe on the verge of a strong take off on the way up. When that happens you will see bigger candles and overbought readings that will not be followed by a correction but even more gains. The third wave should eventually become fascinating.

USDJPY

The Japanese Yen as is about to start its next wave of getting stronger. This means that the USDJPY will go down. The next wave down from the resistance at 115 should head towards the 108.3 mark. 

USDSGD

Last year I was bullish on the USDSGD and it turned out right. But now as the dollar is weakening I am considering alternate paths. So I wonder if the strong rally at the start of 2011 is wave 1, and not part of what looked like a triangle because of the trendlines. If that is true then the rally in 2016 was wave 5 and the move to a new high completes the pattern. This allows for a deeper correction. The Fibonacci math fit perfectly as wave 3 = 1.618 times wave 1, and wave 5 is just short of equal to wave 1. In this case going back to 1.33 over a year is possible.