What I am Watching: US Dollar Index, Gold Soars, DAX and CAC React to Trade Issues

US Dollar Index

The first thing that I’m watching today is the US dollar index, as it has taken a little bit of a hit. Now, I do think it’s almost impossible to look at this chart without thinking about the EU and the United States tearing up agreements as far as trade is concerned over the Greenland spat. It’s also impossible to look at this chart and not take into account that it is Martin Luther King Jr. Day in the United States, and therefore, half of the liquidity is gone.

I think this is a knee-jerk reaction, and I don’t really see much in this other than maybe a pullback, but when you look at pairs out there, such as the Euro against the US dollar or the British pound against the US dollar, both of those currencies have taken advantage of the fact that the Americans aren’t on board.

Buying the US Dollar

The Europeans, of course, will buy the dollar at times, but right now, I think there’s a general panic out there, mainly driven by nonsense, that global trade is suddenly going to end. It’s not. We’re just back to where we were before, and what I see is an opportunity to buy the US dollar if we get anywhere near the 50-day EMA, currently at the 99.11 level.

This would coincide with the Euro falling because it’s such a huge part of the US dollar index, and of course, the British pound as well. Both of those have been rather negative for the last several weeks, and one day does not make a trend, so I look at this as a potential opportunity to buy the US dollar against most currencies, except some of the higher-yielding exotics like the Mexican peso or the South African rand.

I think this opens up a possibility to continue this bottoming pattern that the US dollar has been forming since roughly June of last year. I think this continues, and I do think the US dollar really starts to pick up steam a little bit later this year, but as things stand right now, we are still in a wait-and-see type of phase.

Gold

One market that I would never short at this point is the gold market. Gold markets, of course, have been somewhat thin during the trading session, and we have given back some of the gains from the 4,700 level. Any pullback at this point in time is an opportunity as far as I can see, and on the hourly chart, somewhere around 4,640, I’d be interested in dipping my toes in the water.

Gold continues to be a high flyer. I would prefer to own gold over silver mainly because of the insanity around the silver market and the fact that the leverage can really get you hit. Unlike the silver market, this isn’t about speculation on AI data centers or things like that.

Following the Central Banks

This follows the central banks. Central banks continue to accumulate gold. The US dollar, of course, is starting to bottom, but you’ll notice, and many of you have been given this poor information out there, well, if the US dollar is going to turn around and start strengthening, that’s bad for gold. That’s not true at all. I could introduce you to a decade called the 1980s, where both were rising.

So, that being the case, it’s a safety play. What is safety? Safety is gold, safety is the US dollar, even though the US is at the center of all of this chaos right now. I prefer to buy dips.

German DAX

The German DAX gapped lower as you would expect. I think you probably have an area between 25,000 and 24,750 that will act as a sponge, and we will bounce. If we can recapture the 25,100 Euro level, I think at that point in time, I will become much more comfortable buying the DAX.

Throwing Money into Stimulus

But this setup, for me at least, is a reason to buy because the DAX is moving on a whole host of things, and it’s not just US-European trade. It is the fact that the German government is throwing a ton of money into stimulus into its economy, something the Germans are notorious for not doing, and therefore, money will have to go somewhere.

I think the DAX is a big winner over the next year or two, and I look at this as a spongy area that I will take advantage of on the bounce so that I can buy the right-hand side of the V, as it were.

CAC 40

Paris, the CAC 40 looks very interesting to me right now. I think if we can recapture the 50-day EMA, I’ll be buying this index. It did take a bit of a beating right off the bat, but ultimately, again, this is headline-driven. I don’t think it’s reality-driven. The United States and Europe are not going to stop trading with each other. The US and the EU are not going to war.

Recapturing the 50-Day EMA

I do think the CAC 40 is a market that you have to be interested in. It’s a grinder; it’s not as high-flying as some of the US indices, but as the United States was closed during the day, it does bring my attention over to Germany, France, etc.

I think this one could be a winner. I definitely like the fact that we made a recent high and then pulled back right into a huge cluster of what should be order flow. Again, if we can recapture the 50-day EMA, maybe clear the 8,200 Euro level, I’d be very interested in buying.

I do think it’s almost impossible to look at this market without thinking about the EU/US spat at the moment, and what it could mean in the next few weeks.

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