For the last several weeks, the background noise of the coronavirus has been dominating commentary on all the markets: the dollar, gold, interest rates, and the stock market. And with all the emotion, panic and chaos we’ve been hearing, it’s incumbent upon us to be entirely objective.
Let’s start with interest rates, because you’ve probably been hearing a lot about them.
Last week the US Federal Reserve lowers lowered interest rates by 50 basis points. In response, the 10-year Treasury bond yield went under the 1% threshold for the first time in its history. It didn’t stay there very long, but the precedent was set.
This was not surprise if you’ve been looking at the long-term price history of interest rates.
And it backs up the key point I try to make every week in my Reports: the news is always a catalyst for what markets were already doing. In fact, there’s probably no better example than this chart of a global phenomenon:
For the past few years, we’ve seen a concerted race to the bottom with interest rates. Each central banker in each country has been lowering rates as far and as fast as they can. Many rates in Germany and France are now negative. We have negative rates in Japan and nearly zero rates in Australia and New Zealand too. So this has been an ongoing, escalating trend.
Now of course the local news is offering the virus as the reason why the U.S. Federal Reserve acted as it did.
But it’s my contention that the Fed would have done so anyway at some point in the future. The coronavirus is simply accelerating what was already happening.
Note that the chart above shows the trajectory of interest rates over 5,000 years! It certainly puts everything in perspective, including the spike at the end of the 1970s instigated by Paul Volcker to fight stagflation.
The key point here is that since 1979, rates have been dropping. This has been the trend for the last several decades. So what happened last week was just a continuation of what was already going on.
In fact, price tells you where markets are headed before the events surface. And events tend propel markets in the direction they were already going. This is a very important point to keep in mind, especially when we look at a few more long-term charts this week.
Here’s the 43 year history of the U.S. Dollar Index (USDI), which measures the U.S. dollar measure against half a dozen major currency pairs.
You can see that despite the fact USDI has run up for the last 10 years, it’s still well below historical peaks.
What’s more, USDI is tracing out what looks like a descending triangle where each bounce off the common low is lower than the last bounce. There might still be some room to run on the upside, but USDI is at a historic resistance level. (When we look back on this one day, it wouldn’t be surprising to see this as a major turning point in the U.S. dollar.)
In the meantime, I’m unsure whether we’re going to have one more run up to that sloping trendline or if we’re going to collapse from the double top. However, it’s starting to look like the latter is more likely.
Another key point: once dollar trends take hold, they keep going for many years: 5, 8 even 10 years.
Obviously this is a smoothed out curve, but we can surmise that if the dollar starts turning here then USDI could have a 5, 8 or even 10 year run to the downside. So keep that in mind if you think you’re a little late to the party when it comes to shorting the dollar.
For now, resistance continues building at the same level where in 2016 – 2017 USDI had a double top. It looks like there’s another double top emerging right now. The chart below shows a more zoomed-in version of the 43 year U.S. dollar chart:
Note that we’re in a chaotic market environment where prices are apt to reverse violently.
So while I’m not saying a USDI crash is imminent, it certainly looks like the U.S. dollar is about to turn and crash based on 43 years of history.
And if we really are on the cusp of such a crash, I know exactly how to play it for best effect.
The markets are pretty spectacular at the moment, with more opportunities emerging over the past seven days than I’ve had in some seven month periods.
In this week’s session, I shared what I was seeing, why I believe the US dollar is going to crash, why Oil will significantly drop and why Gold could reach a 300-year high.
The opportunities are waiting to be grabbed for fast-moving traders this week and it’s not every week that I can record sessions like this.
- Why the US Federal Reserve slashed interest rates, and why I believe they would have made this decision regardless of pressures of Coronavirus
- Is the US Dollar going to crash? Why the 43-year chart is showing that we’re entering the beginning of a big crash and the one currency pair that will be detonated as result (watch from 7:03)
- “Teaching moment” – the double top from 2015 that indicated that the USDJPY was going to crash, and why my long-term prediction has finally come true
- Is the biggest opportunity on the board on the EURUSD and the one thing that I’m waiting to see before I’ll be backing a huge up-trend (watch from 12:34)
- The “pull back” on the EURGBP and why this is an opportunity to take a position on the long side
- Why I believe that Oil will drop significantly to $20.00 and why it will probably be blamed on Coronavirus (although the long-term trend has been indicating this direction for the past five years)
- Will Gold reach its 300-year high or is it a trap? I share my thoughts on one of the most exciting trading opportunities on the board (watch from 24:01)
- The 13-month bull market that has been brought to its knees in under two weeks (and why I see this as a change in the character of this market).
- Plus much more
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