Market Update 4/1 – The Copper/Gold Ratio and Inflation Trends

SPOT GOLD 4 HOUR

Gold has broken above the 2021 trendline.  Initial upside focus is 1785 (center line of the channel from the 2020 high and February low).  Price could pull back from 1733 or so and the top side of the 2021 trendline is now proposed support near 1712.

3/31 – Action in PMs is interesting following today’s turns higher in gold and silver.  Silver turned up from beneath the early March low but gold never broke the early March low.  This non-confirmation is typical at turns.  I’m watching gold with a closer eye right now due to the trendline from the January high (the 2021 trendline).  A break above would indicate a behavior change and shift focus to the center line of the channel from the August 2020 high near 1780.

COPPER FUTURES DAILY

Copper continues to coil.  Which way is Dr. Copper going to break?  I’m thinking lower (eventually) given the rejection from the underside of the LONG TERM trendline (see weekly chart below) but it’s a waiting game until the trendline from the March low breaks.

3/25 – 3.90 is huge for copper.  This is the trendline and the 50 day average.  A break below would signal an end to the rally that began at the March 2020 low.

COPPER FUTURES WEEKLY

COPPER/GOLD WEEKLY

The copper/gold ratio is churning at 8 year trendline resistance.  A pullback/consolidation of gains over the last year (the ratio bottomed in April 2020) ‘makes sense’ from this level.  This is an important ratio to watch for clues on interest rates (Gundlach often references this ratio) and trends in inflationary/deflationary assets (notice the deflationary crash into the 2009 low and recent inflationary rally for example).  I prefer to look at the 30 year bond rate rather than the 10 year note because the long end is more indicative of inflation.  The copper/gold ratio and U.S. 30 year bond yield are shown in the chart below.  So…pullback in the ratio from resistance…and pullback in rates (also from resistance…see 2 charts down)…which may mean a deeper pullback in the ‘inflation trade’.  In FX, this would mean higher USD (already underway), lower commodity currencies (getting started), and lower Yen crosses (waiting on the turn).

COPPER/GOLD (BLACK) AND U.S. 30 YEAR YIELD (RED) WEEKLY

U.S. 30 YEAR BOND YIELD

No change…and see above comments.

3/23 – Bang.  The noted level held as resistance for the 30 year yield we’re seeing the first decent drop in yield since January.  Not coincidentally, the inflation trade is starting to fall apart (USD rally, crude and silver declines, emerging markets breaking down, Yen crosses dropping, etc).  I expect this to resume until further notice.

EURUSD 4 HOUR

I’d love a test and hold of 1.1650 to play a EURUSD bounce.  Until then, 1.1835 is proposed resistance.  If the rally from this week’s low unfolds in a clear 5 waves, then I’ll entertain the long side.

3/30 – EURUSD continues to drift lower and near term levels of interest haven’t changed.  The trendline confluence at 1.1640 remains in focus for possible support and a low.  1.1835 still remains proposed resistance, especially if reached before 1.1640.  Generally speaking, EURUSD has entered a ‘sticky’ zone for support (see the weekly chart below) which includes the 2015 high, 2016 high, and top side of former trendline resistance.  Also, VWAP from the March 2020 low has been reached (see futures chart 2 charts down).  VWAP from the March 2020 high in DX is slightly higher.

USDCHF DAILY

This USDCHF chart is a perfect example of parallel channeling with original slope.  Another example is the longer term USDTRY chart later in this post.  Simply draw a line off of the first 2 pivots (lows in this case).  Then extend a parallel from the extreme pivot on the other side (a high in this case).  This parallel estimates resistance.

GBPUSD 4 HOUR

Cable appears headed for a test of 1.3880-1.3920.  This is 2 equal legs from the March low and the underside of the trendline from the March 2020 low.  That’s a level to keep in mind for a possible short entry.

AUDUSD 4 HOUR

The 3 wave drop into today’s low suggests that AUDUSD action since the 3/25 low is an expanded flat.  The implication is that price slightly exceeds .7664 before turning down again.

USDCAD HOURLY

USDCAD continues to follow the script.  The drop from this week’s high would consist of 2 equal legs at 1.2494.  This is in line with the previously noted 1.2473/87 zone.  Bottom line, 1.2473/94 is proposed support.

3/31 – USDCAD has turned down and focus for support remains on the mentioned 1.2487.  This level is reinforced by the 61.8% retrace at 1.2473.  The full Schiff fork since the March high is shown in the chart below.  The level for proposed support is near the 75 line from that fork.

USDTRY DAILY

USDTRY nailed the underside of former channel support this week and has turned sharply lower.  The downside if favored until further notice.  Watch for resistance near 8.2340 (April open).  The longer term chart is shown below.  Note the parallel channeling technique with original slope.

USDTRY 2 DAY BARS

GBPJPY DAILY

Keep an eye on GBPJPY as it nears the April 2018 high of 153.85.  This level is also the median line of the fork from the 2016 low and upper parallel of the channel from the March 2020 low.  I’m on reversal alert at this level.