Recent rotation in multiple foreign currencies hints at the fact that a new stage of the “capital-shift” process is taking place and that skilled technical investors need to pay very close attention to how these currencies continue to react over the next 3-to-6+ months. In the recent past, most of the world's foreign currencies were declining in value while the USD continued to strengthen. In fact, we authored many research articles about these trends and how weakness in foreign currencies will drive new foreign investment into the U.S. stock markets for two simple reasons: strength and security.
Now that a few of the world's most mature economies, and some that may surprise you, are starting to change direction, we may be starting a new stage of the “capital-shift” process that may open up multiple new opportunities for technical traders. Indeed, as the old saying goes, “follow the money.” At this point, if our research team is correct about these price-trend changes, following the money may mean opening our eyes to new investment opportunities across the Pacific and Atlantic – as well as very near to the U.S.
The first thing we want to highlight is our belief that the U.S. dollar and U.S. stock market should continue to provide price strength and upward price opportunity – even throughout any price correction or contraction that our researchers may identify. Our predictive modeling systems have shown us what we believe to be an incredibly accurate prediction of future price activity over the next 3-to-5+ years.
Although though we are not going to share that research today, the one thing we want all of our followers to understand is that the U.S. stock market, and likely the U.S. dollar, are poised to continue to see longer-term upward price growth over the next 3+ years. Yes, there may be a few price rotations/declines throughout this process, we need to understand that price naturally attempts these types of rotations in an effort to provide future price support, price exploration and future price trends. The price will always attempt to establish new highs or lows throughout a trending process.
U.S. Dollar
The U.S. dollar has been trending higher since early 2018. We believe the USD will continue to push higher within the price channels we've drawn on this chart and, eventually, attempt to move to levels above 100 near the end of 2020 (or slightly after this date). We don't think anything will disrupt USD's continued strength unless some major economic/credit crisis completely destroys the support of the global economic markets and takes everything down with it
Our team believes the change in the “capital-shift” process of global investing is centered around the concept that certain global currencies, as well as their associated stock markets and strategic stock sectors, may have reached a point where price is exceedingly below fair value and when one considers the fundamental economic strengths related to maturity, economic capabilities, geopolitical or proximity economic factors and future leadership/opportunity factors, investors are suddenly viewing these currencies and stock markets as being uniquely positioned for potential upside growth. Thus, this change in perspective could drive a new upside price trend throughout a number of undervalued currencies as well as present a very real possibility that skilled technical traders may find real value and opportunity by expanding their search criteria into assets related to these currencies.
One of the most basic elements of investing is understanding how supply-demand economic functions work and where the current “equilibrium” is. The easiest way for us to explain this concept is to think of a sought-after product (let us assume one ounce of gold) and the price of that gold as a measure of the price level in relation to demand. When gold is low, buyers rush into the market to buy up as much as they can afford because the perception is that gold prices should be higher (thus gold is undervalued). This means the equilibrium level is higher than the current price level of gold. When the price of gold is high, buyers stay away from purchasing it and the price eventually begins to fall because demand is low. This means the equilibrium level is lower than the current high price of gold.
Price always moves from above or below the equilibrium level to price levels on the opposite side of the equilibrium level. Think of the equilibrium level as the optimal price level where demand meets supply and future expectations of price are minimized. This equilibrium level is where the price would be if we removed all the hype, fear, greed and speculation from the market. The equilibrium level fluctuates as a true fundamental and true price exploration takes place across the supply-demand curve. Almost like the average temperature fluctuates throughout the seasons of the year.When a shift in investor sentiment happens, much like a shift in seasons, price changes direction and begins to rally or decline and that shift in trend changes the supply-demand equilibrium level as investors pile into or pull out of a market. Thus, if our researchers are correct and this change in the longer-term opportunity for selected currencies is a true longer-term capital shift, it may be a very early opportunity for investors to begin focusing on the opportunities that will become present in the near future.
Australian Dollar
The first currency we want to focus on is the Australian dollar. Historically, the Australian dollar has continued to trend lower over the past 18+ months and currently shows very little strength or opportunity to form a bottom. The lows near 0.67 may prove to become a future bottom in price, but the trend has not confirmed this yet and because of that, we believe weakness is still prevalent in price.
Canadian Dollar
The Canadian dollar, on the other hand, set up an intermediate price bottom in early 2019 and has continued to strengthen moderately over the past 10+ months. One thing that we want to point out about our research is that we believe currencies and nations that have strong economic ties and proximity advantages (being close to the U.S. and having strong economic ties with the U.S.) are very likely to perform well or begin to strengthen in the near future. Canada has a number of factors that may prove to be advantageous going forward. Strong economic ties with the U.S., a booming cannabis and resource market, strong agriculture exports and a mature economy compared to other nations.
Euro
The Euro price chart continues to illustrate price weakness as future expectations of economic strength is far off. The interesting facet related to the euro is that a weakening eurodollar will eventually present a clear opportunity for investors as soon as the European union enters any type of economic recovery or strength. Until that happens, we believe the continued price weakness will potentially drive euro lower – eventually attempting true parity with the U.S. dollar.
British Pound
The British pound has recently rebounded to the upside with some ferocity. Of course, this 6+ week upside price rally does not make a new longer-term price trend yet – but we believe this upside move may be related to the Brexit deal and renewed economic ties/trade with the U.S. In other words, investors may be shifting expectations and price levels into acceptance that the pound may become a very solid future investment – assuming the Brexit deal creates a renewed economic cooperation between Great Britain and the U.S.
Mexican Peso
Lastly, the Mexican peso has recently started to base near 0.049 and may possibly attempt to move above longer-term resistance near 0.053 on renewed expectations of a stronger economy, stronger economic ties with the U.S. and a post-US 2020 Presidential election rally. The peso's bottom came in 2017 near 0.04785. We believe the peso could rally above 0.061 over the next 18+ months – resulting in an 18%+ upside price rally related to stronger U.S. economic growth and stronger economic ties between the U.S. and Mexico.
Concluding Thoughts
These directional changes in the MXN, CAD and GBP suggest that global investors may begin shifting capital into the strongest sectors and/or the value sectors of these countries trying to capture a late 2020 price rally, which could carry forward into the 2021 and beyond economic recovery that we expect to take place after the 2020 U.S. presidential elections.
Please keep in mind that quite a bit hinges of the outcome of the U.S. elections in 2020. Just like we saw on election night in November 2016, global investors and global corporate leaders will react to any fear or opportunity related to who is expected to win the U.S. elections in 2020. More taxes, more regulation, more uncertainty will immediately derail any attempted economic recovery that sets up over the next 10+ months. We need to watch how these currencies strengthen before the election, then become very cautious 2 to 3 weeks before the election takes place in 2020.