Midweek Market Update

Market updateDear PGM Capital Blog readers,

In this midweek’s blog edition, we want to highlight some of the most important events for the week of September 29 and October 03, 2014.

  • The Strong US Dollar
  • Must see internet links
  • Technical Market Outlook

The Strong US Dollar

This week we will take a look at a currency phenomenon we are witnessing happening now for nearly two months and leaves some question marks. We are talking about the strength of the US Dollar since the beginning of August.

It is not unusual to see currencies fluctuate, but in this case we are seeing for currencies a strong rise in the US Dollar against all other major currencies in a relatively short time. Normally currency moves are fairly small and happen over longer periods of time and its rare to see sharp rises or declines without any major fundamental events.

Here is an performance overview of the other major currencies and commodities against the US Dollar since August 1st, 2014:

  • Japanese Yen: -6.19%
  • Euro: -5.69%
  • Canadian Dollar: –2.68%
  • Australian Dollar: -6.07%
  • Swiss Franc: -4.87%
  • British Pound: -4.01%
  • Gold: -6.57%
  • Crude Oil: -5.32%

This clearly shows that there is an US Dollar strength and not necessary a weakness in the other currencies/commodities.

This sharp move in the US Dollar is based on the announcement that the FED will complete the  tapering of its QE program  and that we might see the first interest rate hike at end of 2014, but more likely at beginning of 2015. These news and the increasing confidence in the US economy has spurred confidence in the US Dollar.

But there is a big problem with a strong US Dollar, namely that it can backfire the ambitions for the USA to create and sustain a strong export driven economy. This might in the end hit the bottom line of those export oriented US companies and if the US Dollar continues to rise, it might have big consequences for the US economy because the US and its economy will get more expensive for international trade.

Also will it be hard for the FED to increase interest rates which might hurt the US economy even more on the background of a rising US Dollar.

On the other side, we have to be careful and should not jump to conclusions too fast. From June to September 2008 we have seen a very strong US Dollar rally against all major currencies and commodities as well, but we all know what happened in the weeks after September 2008.

While we don’t want to assume that this current Dollar rally will lead to a strong market correction, but the chances are higher then ever since we are looking at equity markets around all time highs and a strong overbought sentiment. We are reaching unsustainable levels in the equity markets and US Dollar and without a healthy correction we will head straight to a major bubble.

It will be interesting to see how the strength of the US Dollar will play out in the next few weeks, but we are witnessing interesting times and increasing volatility in the markets.

Must see internet links

This week we have a little special and providing a link to a eye opening documentary about traders produced by the BBC called “Traders: Millions by the Minute”:

Technical Market Outlook

Following last weeks sentiment indicator, we have seen some bearish follow through in the equity markets and if we don’t see any major bullish rebound until the end of this week we will see that the mid-term sentiment will turn bearish as well.

This week we will take a look at the precious metals and oil markets and provide you with the sentiment indicators:

Short Term – Multi-day trends (7 up to 60 days)

  • Gold: Bearish
  • Silver: Bearish
  • Oil: Bearish

Mid Term – Multi-week trends (4 weeks up to 6 months)

  • Gold: Bearish
  • Silver: Bearish
  • Oil: Bearish

Long Term – Multi-month trends (3 months up to 5-6 years)

  • Gold: Bearish
  • Silver: Bearish
  • Oil: Bearish

While the above picture doesn’t look too good at the moment, the short-term sentiment might change quite fast and in this oversold commodity market conditions there are some great speculative buying opportunities.

Still we advice to be cautious because there is no clear sign at the moment if the precious metals might go lower or if we see a major bullish turn around soon. Very important for Gold is, that it holds the very important 1180 support level otherwise we will see heavy bearish follow through.

The biggest reason of the recent weakness in the commodity markets is basically the strength of the US Dollar and we might need to see a combination of stronger buying demand in commodities and a correction in the US Dollar to see rising prices.

For the cautious investor we advice to wait until we get a bullish sentiment indicator in the short-term to enter the markets.

As always we will keep you updated on these developments.

Last but not least, before following any investing advice, be aware that above outlook is of pure technical nature and does not respect any global macro events that will disturb this outlook. Please always consider your investment horizon and risk tolerance and financial situation.

Yours sincerely,

Michael Panneflek

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