Why Wait for the Fed?

USD Defies Expectations

We have the USD Index that just moved to its early low and is starting to move back up. Let me write that again: the USD is refusing to move to new lows despite the change in Fed’s approach and focus on cutting rates and despite Fed’s independence being seriously questioned and doubted.

This is a terrible combination of factors and yet – the USD is holding up. Also, despite the extremely bearish sentiment. This is exactly how major bottoms look like. They become apparent with the benefit of hindsight, but it’s very difficult (mostly emotionally, it’s not really about logic of facts here) to stay on track while everyone is staying that the USD is and/or should be worthless as nobody wants to buy.

Remember: the USD Index is a weighted average of currency exchange rates. EUR/USD and YEN/USD have the biggest weights.

Are things really so much better in the Eurozone and in Japan? No, they are not.

Are the European and Japanese companies capitalizing mostly on the AI revolution or is the U.S. leading it? The U.S. is leading it.

Are the tariffs going to increase the demand for the euro and the yen for USD holders or decrease it? They are going to decrease it – goods coming from abroad are and will be more expensive for U.S. consumers.

Mining Stocks Signal Trouble

The mining stocks have already told us what they want to do yesterday.

In a single day, the GDXJ erased the few previous days’ gains and it invalidated its move above $90 (GDX moved back below $70 at the same time). The ETF was down by almost 3% yesterday and it’s down by over 1% in today’s pre-market trading.

If the USD Index rallies, the above is likely to be magnified. By a lot.

Gold’s decline is not that big when compared to the size of the recent rally, but gold moved below its previous yearly high – could be the sign of things to come.

Platinum is down significantly as well. Platinum’s final attempt to rally back above the 61.8% Fibonacci retracement level failed and this might have marked the start of platinum’s big decline. Just like it’s been the case in the past.

And since platinum’s big move is likely to be aligned with the move in the rest of the precious metals sector, we have a quite coherent picture that would fit USD’s comeback.

All this means one key thing – that trading adjustment I made in yesterday’s Gold Trading Alert, remains very much up-to-date.

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Thank you.

Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief