I compared the correlation between Euro_ Gold_ and Dollar_ on a combined chart, and tried to figure out the periods when Euro_ and Gold_ reacted inversely to DXY_ trend. I distinguish the two factors effecting gold_prices: USD_weakness, risk appetite.
Focusing on the non-economic risks, I recall these critical events since November.2016. - US election risk release and Trump rally - Netherlands and France elections - Brexit uncertainty (effective until T.May triggered Article 50) - Comey’s testimony effect on Trump administration - North Korean tension (excessive reaction in gold_prices)
Except US elections (after which USD_ smashed all its rivals), maybe we can say that the gold_markets bought the other risks listed and sold them back, which broke the Euro_Gold Correlation. During other times, correlation seems quite normal, where USD weakness or strength has driven the prices of Gold_and_Euro_ in parallel.
At the final point as of now: Gold_prices still ranging within 1250-1300, but Euro_ appreciated well compared to last quarter of 2016. In economic terms, USD is weaker than before (FED less hawkish) and EUR is stronger supported by hawkish ECB (following long years of dovishness). Taking all above as a deuce point, I plan to take long-term positions on (stronger USD/weaker EUR) basis, which I see more probable.
DXY is my favourite to trade.. thanks for doing analysis and providing ideas for it CitRoN_RouGe
jvtsson
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thanks for the good work...
todukixfa
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thank you for the analysis!
Victor.Y.F
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Thank you CitRoN_RouGe! Key words “over heat” and “investment clock” may have more clues in a super cycle. In a short time frame the correlation often changes randomly. We now are in an hiking cycle where hasn’t happened during 10 years, the last hike from the FRB is in 2006. In an hiking cycle, the interests should be added into the inflation rate in the next month of the hike with Fisher Equation, this will bring more hikes... If we look back at the first hike in 2015, it turns out an huge hike which is much more than 0.25% by the meeting announcement. After 2 years adjustment the market now is showing something new in interests, core inflation, Yen, and of course the indexes correlations, a positive cycle where has not been seen in a decade may have begun.
CitRoN_RouGe
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@victor.Y.F, I also think so. But even the hike cycle starts and pressures the gold prices down, I believe that the market makers will make use of every non-economical event (or bubble) to draw the gold prices higher in order to keep it within 1100-1400 range. I do not expect a remarkable breakout in the coming months, maybe even until 2020.
Victor.Y.F
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@CitRoN_RouGe, Thank you for your reply! If the Spain incident makes the Euro dip to it'll be a good opportunity for an investment in the currency. A culture movement usually lasts 8-10 years in human history, US culture revolution is just beginning. If it's ending in 4 years by Trump's targets achieved, then it's good for globalization, but from cycle perspective, it looks like he will serve 8 years.