Decent Day For The USD
George Tsiourvas | Aug 28, 2012 08:09AM ET
The USD had a decent day yesterday, especially against the AUD. We observed a slip through the important support zone between 1.0390-1.0430. That had been in the making for several sessions now an we had discussed it here at TMN. I do not want to exclude a retest of the 1.0430 area but in principle we should be on the way now to the well known 50% fib level at 1.0235. It will likely trade later this week. USD/CAD and USD/SEK had a week start but held the levels, which I find encouraging. EUR/USD did not do much and remains a sell, as well as GBP. Both had a slow day but I am expecting a bit of downside acceleration shortly.
Price action in precious metals was most interesting yesterday. I made the case last Wednesday about a temporary end to the advance in precious metals. I believe the key reversal that Silver delivered yesterday was a good starting point.
Let's remind ourselves why it was trading higher in the first place through August: it was only up to mirror the potential money printing based inflationary expectations that the stock market was trying to express. At TMN we have been discussing it on many occasions why there will not be any sort of "bazooka" of significance this year. In any case, Silver will never let the stock market run away on its own, when the whole advance is based on illusions about easy money.
Whenever there has been a purely money printing based advance Silver has always been outperforming stock indices (see big picture since 2008 or post Jackson Hole in Aug 2010 or even the advance of Q1 2012). These are simply historical relationships that will always hold and this time was not going to be different. If stocks decide to go nuts, Silver will show the central bankers the definition of "going nuts".
I do not think this will happen now in Q3 but it's always good to have this in the back of our mind. Anyhow, we got yesterday what we were looking for, the rally in precious metals is fizzling out and the little pops in stocks during the European session were nothing impressive, in fact US stocks closed the session lower. From here I will be looking for the Gold/Silver ratio to stop its recent correction and advance again. The deflationary case will weaken significantly should this not happen very soon. It is basically "key" to the case.
Junk Bonds (JNK) delivered a key reversal as well, they scored a new high on the day and closed in the red. Hmm, that doesn't look too healthy either. Traditionally JNK is one of the last items to stop the run higher. This looks like an ok start for now, I will be writing more about it over the next few weeks.
That's all for now. Volume should be increasing slowly from here across markets, as participants come back from their holidays. That should help with finding direction in decisive manner very soon.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.