Euro Rally Gives Commodity Bulls A Glimmer Of Hope…
Will Euro Rally Save Precious Metals?
Without question, last week held some important market moving news…
Here’s a quick recap:
- Friday’s US job report revealed another month of strong gains. Employers added 211,000 new jobs in November, which kept the unemployment rate steady at 5%. With this report in mind, it’s a near certainty the Fed will raise rates in their December 16th FOMC meeting.
- OPEC sent the WTI oil price spiraling below $40 a barrel when they announced they’d raise their output ceiling to 31.5 million barrels a day in 2016. Not the news crude bulls were hoping for last Friday.
- European Central Bank (ECB) President Mario Draghi shocked the currency markets last Thursday when he announced a much smaller than expected stimulus package for the Eurozone economy. Traders heavily short the Euro were forced to cover quickly, sending the Euro surging 3% against the US Dollar.
Of the news above, it’s the remarkable Euro rally that’s really catching my eye…
The sudden currency market adjustment sent the US Dollar steeply lower late last week.
Take a look…
As you can see, the US Dollar index gave up an entire month of gains in last Thursday’s wild trading session (green circle).
Thanks to the strong dollar downturn, precious metals markets ended last week on a high note. Gold rallied 2.2% Friday, while silver, platinum, and palladium tacked on gains of 3.4%, 4.2%, and 6.2% respectively.
Clearly, a weakening US Dollar has precious metals bulls jumping into action.
Will this dramatic dollar downturn continue?
It’s essential to remember this month’s FOMC meeting (on December 16th) will very likely result in higher interest rates. Of course, a Fed rate raise is typically viewed as a bullish situation for the US Dollar.
However, given the severity of last Thursday’s downturn and the fact it happened at important long-term technical resistance (horizontal red line in chart above), there’s a distinct possibility the Fed’s rate hike is already priced into the market.
As a result, we could see an additional Dollar decline in coming months…
What’s more, we may see continued bullishness in precious metals and other select commodities in coming weeks.
Here are a few ideas for capitalizing on this development…
The Powershares DB US Dollar Bearish ETF $UDN is an inverse dollar tracking ETF. In other words, when the US Dollar falls, $UDN gains value. However, since $UDN is thinly traded, it requires a careful entry and exit technique.
You could also make a simple bet on higher gold and silver prices through precious metals focused commodity ETFs.
No matter which ETF you choose, you’ll want stop loss orders below the recent swing low to control your downside risk.
Until Next Time,
Justin Bennett
Commodity Trading Research
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.
Category: Commodities
