Inverse Correlation Holds Up for Now

  • GOLD setbacks should be well supported
  • Euro vulnerable to fresh wave of declines
  • Higher inflation could back Fed into corner
  • RBA, RBNZ divergence fuels AUDNZD long

GOLD - I think at this point, it's safe to assume the Euro will retest that multi-year low from March at 1.0462. This will be a big focus over the coming sessions and could open more downside pressure in GOLD. I am long GOLD and well out of the money on this position, but will continue to hold as I believe the upside potential here is far greater than any downside we may see in the sessions ahead. While GOLD has been weighed down on the inverse correlation with the US Dollar, GOLD can just as easily break away from this correlation, finding bids on what is a shaky global environment. The combination of the stress of higher rates in the US, with a still struggling global economy and escalating geopolitical risk, all should attract investment in the yellow metal.

INFLATION - And so, I believe the fundamentals are super supportive of GOLD down here and will be looking for follow through once this latest intense pullback plays out. Technically, the daily chart is well oversold, which warns of a reversal ahead. There is plenty of economic data out today that will make things even more interesting, while we also get some Fed speak, highlighted by former Fed Chair Bernanke. I will be watching today's US inflation print. My theory has been that the Fed will be backed into a more difficult corner where it has no choice but to hike rates as inflation finally starts to pick up. So anything on the hotter side today, could very well inspire some risk off trade, more US Dollar demand, and even a recovery in GOLD.

Keep an eye on US CPI today. Via @joelkruger

PORTFOLIO - Otherwise, I have been disappointed that USDJPY could not follow through to the downside, though I continue to believe that a more serious wave of risk liquidation ahead, will keep the major pair from mounting any meaningful rallies from current levels. On the bright side, AUDNZD continues to extend its recovery, pushing my long position further into the money, while solidifying prospects for the formation of a meaningful longer-term base. The contrasting headlines of a less dovish RBA Minutes and subdued RBNZ inflation report have fueled this latest wave of gains. Have a good one out there today!

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