Oil Leading Dollar Lower? Watch Oil!
Rising yields have lead to a massive sell-off in OIL markets foreshadowing: tighter economic conditions, cheaper energy prices and lower inflation prints - ultimately resulting in a weaker dollar / stronger euro in the short term. Globally inflation took off mainly as a result of covid stimulus exacerbated by Russia’s invasion of Ukraine. Even though the war is far from over the supply chain kinks / export bans caused from it are mainly resolved. Lower natural gas prices result in cheaper fertilizer and food. Cheaper oil reduces manufacturing and transportation costs. Higher yields and higher energy prices are a cure for themselves.
If a Dollar pullback / Euro rally is expected, a rally in risk assets will ensue. Lower inflation leads to greater speculation of a soft landing ultimately resulting in softer economic conditions - beneficial for risk assets. I believe Oil has shown the markets hand and is notifying us of weakness in yields/dollar. Gold may look to breakout of its 3 year range between $1600-$2000. A return to pre-war levels for the dollar will give Gold and risk assets a boost. On a longer time period, I remain bearish EURO / bullish Dollar in the long term as I believe the economy remains resilient elevating inflation into next - dispelling the soft landing scenario. However in the next 3-6 months, I can envision a weaker Dollar and all that comes with it.
Supporting Charts will be posted below.
If a Dollar pullback / Euro rally is expected, a rally in risk assets will ensue. Lower inflation leads to greater speculation of a soft landing ultimately resulting in softer economic conditions - beneficial for risk assets. I believe Oil has shown the markets hand and is notifying us of weakness in yields/dollar. Gold may look to breakout of its 3 year range between $1600-$2000. A return to pre-war levels for the dollar will give Gold and risk assets a boost. On a longer time period, I remain bearish EURO / bullish Dollar in the long term as I believe the economy remains resilient elevating inflation into next - dispelling the soft landing scenario. However in the next 3-6 months, I can envision a weaker Dollar and all that comes with it.
Supporting Charts will be posted below.
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1. Cheap Fertilizer indicates most Russia/Ukraine Supply shocks have been resolved.
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2. A reversal in Gold will signal a reversal lower in yields too.
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3. Long term the EURO looks weak. It is in the process of breaking down out of a 40 year channel!!
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Bonds seem to be oversold.
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GDX breakout!
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Dollar and Oil topping pattern or continuation pattern?
