USD is the worst FX, except for all the others.
USD is the worst FX, except for all the others.
Breakout by Philo, Issue #3. Micro-Paradigm Shift.
What did we write about in the last issue? Click here.
In this issue I will focus on the major equity indices + the DAX. The Euro and Yen -Vs- the almighty buck, Precious shiny metals etc.
Now that the fairy tale of benign disinflation is fading, this could lead to a micro-paradigm shift that will affect the broader financial markets.
Note that I launched a new concept this week — which includes short voice notes to self on thoughts and concepts that I currently find interesting.
I’ve recorded on the Gold trade and the Yen thus far. Find them here.
This is one of my favourite memes —Keynes is dead but we are still here to pay the piper. Failed Keynesian policies are partly to blame for where we are in markets now and why Gold is exploding and non-USD currencies are crashing against the USD.
It’s not that the Dollar is so perfect, it’s just not as bad… Read on.
Breakout, Issue #3
What’s the setup in April 2024?
The last issue correctly expected an “exhaustion” from the major equity indices —which was actually sealed with a kiss from Jerome on Fed Day.
I came out openly bearish on WTHIH? and expressed my thoughts here:
Let’s start with equity indices
S&P500, daily.
The SPX on the daily has broken its multi-month trend (below MA10 and MA30) since October 2023, and is now faced with the MA50. I consider this an extremely critical area, which if broken could signal a reversal of the S&P’s trend and further downside.
Russell 2000, daily.
The Russell paints a slightly different picture, with a clear break of the MA50 — non-mega-caps behave differently, remember??
Nasdaq 100, weekly.
The Nasdaq 100 mega rally since late 2023 touched a gain of ~80%, and is now finally faced with the MA10 (this is weekly) once more. There’s about a 12% downside from the MA10 to the MA50 — and I wouldn’t be shocked if we saw that go down.
From these levels, my first target is mean reversion, and if/when we get there we review.. If I bake in some valuation-level analysis of the Nasdaq, I really don’t see any upside. That’s my bias is to see a break of the MA10 weekly and a fade.
The Dax, daily.
Also below the MA30 and tending towards the MA50.
The DAX doesn’t have any global mega tech cap monsters to support it. Rather it is simply the home of crappy companies like Bayer and Adidas, which don’t benefit from indiscriminate passive flows — making them just that, crappy companies.
Moving on to Macro instruments…and shiny things!
A lot of excitement with Precious Metals these weeks and some FX as well. Let’s start with Gold.
Gold, weekly.
Gold is breaking out of a multi-year ascending wedge — at a time where macro events and happenings support this move.
Louis-Vincent Gave (I follow him on X and so should you) of Gavekal gave us his views on what’s underpinning the Gold move right now.
Silver, monthly.
Silver is much more volatile than Gold, so I prefer the monthly chart right now — which is showing a breakout of a 4 year formation.
Silver went parabolic in 2012 and then entered a bear market for almost a decade. Now it’s breaking out again, no one knows where it can go. I view Silver as a derivative to Gold — the saw way I view meme coins as derivatives to Bitcoin…
Japanese Yen, weekly.
A beautiful breakout on the Dollar/Yen — and my gut tells me this can kiss 180 Yen to the dollar going forward.
The BOJ is just hopeless with their zeroish rate policies, and the Western world has to keep rates higher for longer because the threat of inflation has not gone away. This means a persistently wide rate differential and a positive carry for those Long USD/JPY…
Long-term followers know I’ve been all over the Japanese Yen theme ever since I launched Philoinvestor.
Euro, weekly.
The Euro! My favorite teratogenic common currency. I expressed my broader views on the Euro and the Union in this long-form piece last year here.
The euro suffered massively since the Russian invasion into Ukraine, bounced back (from below parity) when the authorities reactively managed to reduce the prices of imported energy but has more recently stalled — for a number of reasons.
I will seek to express my current thoughts soon, but for now let’s focus on the technical picture. After flirting with 1.13 last summer, the Euro has been moving sideways as inflationary pressures in the trading bloc, a raging war in Ukraine, increasing geopolitical conflict and a lagging economy keeps it down.
Now, the reasons are clear. The ECB is clearly expressing that the EU cannot endure higher rates and will have to “diverge” from the Fed..
Most European sovereigns are bankrupt, with lagging economies, spiking inflation and a top-down regulatory environment that could kill even the most vibrant of economies. And what’s even worse, European capital markets are bottom-barrel quality.
I expect serious trouble for the Euro and believe it will re-test parity very soon. Money’d people are simply losing trust in the Euro — once again. We will re-visit this theme.
Ok, enough charts for today. Quality over quantity.
If you have any specific questions or queries, reply to this email and I will do my best to assist. We also have a good chat going on here.
Sincerely,
Philo