For new readers of the blog, I recommend reading the terminology page before the weekly reports.
Currencies
I believe that the dollar has now signaled a failed daily cycle which topped on day 4. It isn't completely out of question that the dollar could have printed a daily cycle low on Thursday but considering the strong moves in the euro over the past month, I think that the dollar printed a DCL in late August and is now in the declining phase of its intermediate cycle. If I'm correct about the daily cycle count, the dollar should still have over a month before the final ICL.
I believe that the next intermediate cycle will left translate and the dollar will make lower lows below 88 later this or early next year. As everything is nowadays measured in dollars, tanking dollar should lead to broader inflation but especially in commodities. The insane money printing by the FED will have consequences and when the inflation finally creeps into the CPI, it'll be too late for the FED to do anything to stop the inflationary wave. I think that the endgame for the dollar is getting close and it'll be very severe.
Now, I'm not saying that the euro will be a better hedge against inflation in the long run as the euro is in the same pit with all other currencies, but at least until we start to see new ATHs in gold and silver, the euro is going to be outperforming the dollar. It's not out of the question that the euro could even reach to 1,30 by the end of the year if the dollar starts to spiral towards the intermediate trendline.
For now, it's hard to say what will happen between now and the FOMC meeting later this month. The euro faces a lot of resistance above and did bounce of the resistance zone on Friday. The FOMC meeting could act as a trigger event which would act as a trend changer for most of the markets or then the event is just shrugged off like most news events. It really depends on how we progress towards the meeting but as long as we keep the big picture in mind, there is lots of profit on the table for grabs.
Frankly, the euro is just looking much stronger than the dollar in short, intermediate and long term. Even with the drop on Friday, the euro closed the week above both its 10 day and 10 week moving averages. Vice versa the dollar closed the week below its 10 day and 10 week moving averages. I think that a lot of dollar bulls will be sweating their palms when the next leg down starts to gather momentum. The dollar isn't particularly strong despite the rally this year.
Oil
As the euro, crude oil also closed above its 10 day and 10 week moving averages. During the week, oil fell briefly below the 10DMA on the news of record setting global supply. If supply is too high compared to demand, price should fall - that's how a rational and efficient market should act. Luckily we don't have rational nor efficient markets and so I believe that the supply news was merely a news event which nobody will remember next week when both crude and brent break new highs. With the dollar likely to start moving down over the next several months, I believe that the 100% YoY oil is still alive and well and so I bought some more calls this week in preparation for this scenario to play out:
Brent has been outperforming crude oil for the past month and tested the highs printed in July at around $80. As I mentioned in the previous Weekly Report, breakouts that occur early in the intermediate cycle have higher odds of producing a sustainable breakout compared to breakout that occur late in the intermediate cycle. With brent knocking on new highs, I believe that crude will follow soon.
Granted, the 3 year cycle in commodities is getting late and so during the next 6 months is the timeslot for the bubble in oil if it's going to happen before the next 3 year cycle low. With the upside potential in oil being so high, it's well worth buying a few lottery tickets.
Gold
Unlike the strong profile in oil, gold is still looking ugly. Gold suffered yet another massive 15 000 contract attack on Friday which left the weekly candle weak. I'm still convinced that the ICL occurred on 16th of August. If the dollar is ready to start moving into an ICL, it'll be hard if not impossible to hold gold down. The rubber band has been stretched to extreme lengths never seen at least in the 21st century and that power will release at some point. I suspect that that move will leave a lot of people to the station as mental capital has been demolished and they are unable to buy and hold on. This ICL has been extreme even by bear market standards and the bottom is looking somewhat similar to the one in December 2015. Back then, gold churned for a month after the actual bottom, but in the end the baby bull rally was extremely profitable for those who were able to hold on. It's also worth noting that the weekly stochastics have started to climb from oversold conditions which has been a good confirming indicator of ICLs in the past.
I think that there's clearly something wrong in the gold market as the market is not responding to cycles nor sentiment and is being capped down by the premarket attacks. I've been personally buying some physical metals lately here in Hong Kong as the price of precious metals is currently very lucrative for the long run. I don't think that these prices are sustainable in the long run nor in the intermediate picture and so with the geopolitical sphere once again tightening, I feel good when buying tangible assets.
Still no changes in the Yuan Gold axis - every day when nothing happens it gives more points for the case of a soft peg. Truly interesting times to be living.
Stocks
Long story short; stocks are still overdue for an ICL and we have the FED rate hike coming in two weeks. For now, I'm just going to suspect that the stock market will remain protected ahead of the rate hike. I'm not going to play stocks from the long side before the next ICL, but in case we do make it into the rate hike with stocks at or near all time highs I'm going to be buying some puts or calendar spreads expecting a mini crash type of an ICL. At the moment I give high odd for a quick one or two week crash into an ICL over the next four to five weeks. The FOMC meeting could act as a trigger event for many assets including stocks.