It’s been less than nine months since traders flipped their calendars to 2018, but crypto asset bulls have aged years (if not decades!) since the holiday season’s euphoria. After peaking at a total market cap above $800B on January 7th, the crypto market has contracted precipitously, briefly falling below $200B earlier this week. Take a look at the chart below.
In our regular gold trading alerts, we focus on the short- and medium-term outlook and we rarely discuss the very long-term issues or price targets. The reason is simple – the long-term issues and price targets don’t change often, so usually, there’s little new to say about them. Consequently, it’s been a long time since we last discussed our view on gold’s explosive upside potential. In fact, it’s been so long that those who do not take the time to read our analyses thoroughly and those who have been reading them for only a short while may think that we are bearish on gold in the long run. Or that we’re perma-bears.
The Dollar Index retreated from its 2018 peak of 96.98 following news that China will resume trade talks with the United States later this month. The news allowed the Yuan and other emerging market currencies to rally after a steep selloff led by the Turkish crisis and ongoing trade tensions.
The price action so far today is emblematic of a textbook “risk off” day: stocks are falling across the globe, oil is trading off by nearly 3%, bond yields are generally retreating, and the yen is the strongest performing major currency (though we would note that gold bugs still can’t seem to catch a break!).
Yesterday’s weakness opened the door to a buying opportunity for those who were patiently cautious. Our narrative all week long has been cautiously optimistic; get out of the forest to see the trees, this market is in a strong uptrend. However, we emphasized yesterday the high probability of a washout. Today the S&P and NQ are up, let's call it, 0.5%.
Crude oil prices got slammed on fears surrounding the Turkish economy, ongoing concerns about China, and a big build in crude supply, but really a lot of what is driving the bus is the strong dollar. Not just the traditional inverse relationship that oil has with the dollar, but how this massive up move is impacting oil supply and demand.
Technically speaking, the dollar index formed a clear “ascending triangle” pattern through May, June and July. The bullish breakout from that pattern, in-line with the recent uptrend, suggests that rates may have further to rally in the days and weeks to come.
U.S benchmarks are lower this morning with the S&P 500 and Nasdaq both down more than 0.5% on emerging market fears and the escalation of the conflict with Turkey. China is leading the way lower on a delayed reaction to Monday night’s trio of dismal reads; Industrial Production, Fixed Asset Investment and Retail Sales.