Weilxin Weekly Commentary: The U.S. dollar is at the top of the big cycle
Gold’s macro outlook is worry-free
July 29, 2022 Yang Yijun, Chief Analyst of Weilxin Investment Consulting Research Center
1 Summary of the week
This week, the international spot gold price opened at US$1,727.51, with a maximum of US$1,763.99 and a lowest of US$1,711.40. As of Friday’s Asian midday, it closed at US$1,762.6, up US$35.2, or 2.05%, and the weekly K-line fluctuated. Rebound Zhongyang line.
This week, the U.S. dollar index opened at 106.54 points, with a maximum of 107.43 points and a minimum of 106.05 points. As of Friday’s Asian midday, it closed at 106.19 points, down 360 points or 0.33%. The weekly K-line showed a shock recovery. Soft small negative line.
This week, the Wellxin International Precious Gold Index opened at 4656.12 points, with a maximum of 4832.08 points and a minimum of 4578.30 points. As of Friday’s Asian midday, it closed at 4814.40 points, an increase of 151.35 points or 3.25%. The weekly K-line was volatile. Rebound Zhongyang line.
The operating rhythm of gold, silver and precious metals this week is completely in line with our analysis expectations. We judged in the internal report last weekend that after the Fed sharply raised interest rates this week, it should be determined that the price of gold and silver has bottomed out, and the price of gold has closed in July. It should be clearly away from the bottom of the month. This is the current market interpretation. In the past two weeks, new customers have obtained good gold and silver long opportunities.
As far as the wellxin precious gold index is concerned, in recent weeks, the weekly K-line KD indicator has shown the most perfect double bottom in the typical oversold zone since 2015, and the K-line pattern of the precious gold index has formed a bottom divergence from , which is A very certain phase or mid-term bottom signal. In addition, the precious metal index also faces precise and strong support from the 250-week moving average, which also showed precise support in March-April 2020. Once the precious gold index bottoms out in the stage or mid-term, gold and silver prices should bottom out accordingly.
There is another unexpected operating feature of the gold and silver market this week, that is, the performance of the gold, silver and precious gold index is stronger than that of the crude oil market. This may be a reasonable correction of gold and silver's insufficient hedging response to the severe inflation in Europe and the United States.
2 Weekly fundamentals - data and news
This week's data and news fundamentals are still inflation, interest rates, and economic outlook expectations. After the European Central Bank unexpectedly raised interest rates by 50 points last week, the Federal Reserve raised interest rates by 75 points this week without any surprise, causing the interest rate differential between the US dollar and the euro to continue to expand. However, after the Federal Reserve announced a 75-point interest rate hike overnight on Wednesday, the US dollar's market reaction was very different from the previous two times, implying "aesthetic fatigue" in the face of positive stimulus.
At present, suppressing inflation has become the primary focus of all work and regulation by the Federal Reserve and other U.S. officials. Although this may cause financial turmoil and even economic recession, U.S. officials no longer care about that much. If inflation is allowed to spread and intensify , the final result will inevitably be a more serious economic recession and financial crisis.
Former U.S. Treasury Secretary Summers said on July 24 that he was "encouraged" by the Federal Reserve's commitment to reducing inflation, but he expressed doubts about the possibility of a soft landing for the U.S. economy, calling it "unlikely." Although the rate hike in the previous six months was the largest since 1994, he believes that Fed officials need to stay the course and continue to "take strong action." On July 22, Summers believed that it would be difficult for the Fed to control this round of inflation on its own. Washington should help the Fed to suppress inflation and urged Congress to consider raising taxes to take away some demand from the economy, thereby helping Curb inflation. But he believes Biden has been on the opposite path: President Joe Biden has been seeking Congress to pass a package of tax hikes and expanded social spending for more than a year. And Summers believes any tax increases should not be used to fund new spending.
On July 27, the day the Federal Reserve announced a 75-point interest rate hike, the White House issued a Biden statement on the 2022 Inflation Reduction Act. The statement pointed out that Biden supports the previous agreement reached by Schumer and Manchin on fighting inflation and reducing American household expenses.It can be seen from the specific sub-item details that this agreement is mainly about the government's guided "price reduction" in some consumption areas, and the improvement of the energy investment environment and energy consumer pressure through energy tax exemptions. The author believes that these measures have little substantive effect on curbing inflation, and can only alleviate the dissatisfaction of consumers and investors with inflation to a certain extent.
Although U.S. officials do not seem to care about the impact of suppressing inflation on the economy, their subconscious minds are becoming more and more cautious, fearing that investors will over-understand the Fed's tightening efforts, which will cause unexpected impacts on the economy and finance. For example, the Federal Reserve no longer easily predicts the intensity of monetary tightening in the medium term, fearing that investors will overunderstand it. Powell's speech after raising interest rates became this: It is difficult to say with confidence what the economy will look like in 6-12 months, so it is impossible to predict the range of monetary policy interest rates next year. The speed of interest rate hikes depends on future data .
Half a year ago, the Federal Reserve fantasized that it could effectively suppress inflation by raising interest rates with words, so it aggressively guided market expectations. However, when the inflation trend in the United States made the Federal Reserve realize that it was impossible to curb inflation by "raising interest rates with words" and that it would have to raise interest rates substantially with real guns, they were worried that the market would over-understand the Fed's tightening efforts. This worry actually subconsciously conveys that the Fed still has a lot of substantive tightening efforts. At the same time, it is worried that tightening will have a significant impact on the economy, so it no longer easily predicts medium-term monetary policy. It can only be said vaguely: The U.S. economy is currently strong and there are no signs of economic recession.
The United States GDP may have negative growth for two consecutive quarters, which is consistent with the definition of economic recession. However, the author also believes that the current US economy does not meet the true meaning of recession. A recession in the true sense must be difficult to contain a comprehensive decline in demand. The U.S. economy is obviously not in such a situation at present. However, we have already seen many signs of a decline in the U.S. economy, especially signs of a decline in housing demand. A decline does not mean the same thing as a recession.
Data showed that sales of new single-family homes in the United States fell to a two-year low in June. Faced with soaring living costs, high house prices and mortgage rates at their highest levels since 2008, many would-be buyers have been priced out of the market, leading to weak demand and sharp declines in sales prices.
In mid-June, the average interest rate on a 30-year fixed loan exceeded 6%. Analysts said: "As long as mortgage interest rates continue to rise, the number of home purchase contract signings will continue to decline." If the U.S. dollar still has a lot of room to raise interest rates, mortgage interest rates will inevitably continue to rise, eventually causing a stronger blow to the housing market. intensity.
On July 27, the Federal Reserve FOMC stated: It will raise the discount rate from 1.75% to 2.50%. Judging from the intensity and speed of U.S. dollar interest rate hikes in recent months, it has been the largest in recent decades. It seems that only the "speed" of interest rate hikes in 1972-1973 and 1978-1980 can be compared. However, judging from the current level of US inflation, the absolute interest rate of the US dollar is still too low. For example, from 1971 to 2022, the international spot gold price month K-line , US federal funds benchmark interest rate, US consumer price index (CPI), US money stock M2 ratio to the total US GDP changes graphically:
through Figure 1 Comparing with Figure 3, we can clearly feel the positive relationship between the inflation cycle and the macro trend of gold. 2001-2011 was actually a major inflation cycle, corresponding to the ten-year gold bull market. It’s just that the ten-year inflation cycle from 2001 to 2011 was not as extreme as the current one, and it was not as extreme as the 1970s. Inflation is currently hitting 40-year highs, but gold's response to inflation is not obvious yet, which is very unusual.
Looking at the history of changes in the US federal funds in Figure 2, in many mid-cycle periods, the US dollar interest rate is directly proportional to inflation, and is also roughly proportional to the movement of gold prices. However, this year the price of gold seems to be inversely proportional to the US dollar interest rate. What is the reason? It's investors who got it wrong. Rather than saying that gold prices are inversely proportional to U.S. dollar interest rates in recent months, it is better to say that gold prices are inversely proportional to the movement of the U.S. dollar index.
The author believes that in the mid-term outlook, U.S. dollar interest rates will continue to rise. However, the U.S. dollar index should have peaked in the major cycle, which should correspond to the gold price being at the bottom of the major cycle.
Small Figure 3, we see no sign of the U.S. inflation (CPI price index) cycle peaking, and we cannot even rule out that this is just the beginning of a very long inflation cycle.
Small Figure 4, the author is accustomed to using the ratio of the U.S. money stock M2 to the U.S. GDP to observe and think about the "liquidity efficiency" of the United States, that is, the driving effect of liquidity on economic output. It is not difficult to see that in the past 50 years, the overall situation has experienced two major cycles. 1995-1999 was a watershed. The previous 20 years were a high-efficiency zone for US liquidity to drive the macro economy. The next 20 years (to date) It is an area of declining effectiveness of U.S. liquidity in driving macroeconomics.
Especially in area A in the past three years, the ratio has risen sharply, which means that M2 the liquidity bubble has expanded sharply, eventually leading to the disaster of hyperinflation in the United States today. Although the Federal Reserve has significantly raised U.S. dollar interest rates this year, the M2/GDP ratio has not declined significantly, which means that the U.S. liquidity stock is still sufficient. This also adds great uncertainty to how U.S. inflation will continue.
Regarding small picture 4, the US M2 performance cycle defined by the author is actually still mainly divided into these two large cycles since data became available in 1959, with 1995-1999 as the watershed:
The steeper the ratio rises, the lower the value of the U.S. dollar relative to its GDP as a credit guarantee, the lower the effectiveness of U.S. liquidity in driving the real economy, and the greatest damage to the interests of global dollar holders.
Looking at the ultra-long cycle, if the United States is still committed to making the U.S. dollar the world's preferred reserve currency, the U.S. M2/GDP ratio may be at the top of the large cycle, and the United States will need many years to correct its liquidity control policy. Unless the United States considers that the U.S. dollar is withdrawing from the historical stage as the world's preferred reserve currency, it can continue to release U.S. dollars without any limit in the big cycle to dilute the interests of global U.S. dollar holders, causing the ratio to continue to increase in the long cycle.
observed the changes in M2 absolute data released by the Federal Reserve. As of the week of July 4, 2022, the U.S. M2 money stock balance was US$21.7059 trillion, compared with the historical record of US$22.1369 trillion in the week of April 18, 2022. (Not seasonally adjusted), the decrease was only about US$430 billion, which was not significant. Therefore, the actual liquidity stock in the United States is still sufficient. Observing the historical changes in the year-on-year growth rate of M2 in the United States over the past 60 years, it can be seen that the year-on-year growth rate of M2 has never been lower than 0. This shows that as long as the Fed is reducing the growth rate of M2, it is considered to be removing liquidity. Looking at the year-on-year growth rate of U.S. national debt, there are still negative year-on-year growth rates, indicating that the U.S. government’s debt reduction at certain times needs to be more specific:
Looking at the large cycle of decades, regardless of the year-on-year growth rate of the U.S. M2 money stock, or the U.S. national debt The year-on-year growth rate may be at a relatively low level in the medium to long term. This shows that even though there may be much room for U.S. dollar interest rates to increase, there may not be much room for substantial liquidity decline. If the substantial liquidity space in the United States does not decrease significantly, it may basically mean that the US dollar cycle has peaked. The U.S. dollar interest rate is only one of the important factors affecting U.S. liquidity, not the only one.
What about the U.S. government’s debt efficiency? It can also be quantified using the same driving efficiency of M2 on the economy, that is, using the market value of U.S. Treasury bonds/U.S. GDP to quantify the driving efficiency of U.S. government debt on the macro economy. Not surprisingly, this is consistent with the historical changes in the driving effectiveness of US M2 on the economy:
Looking at the ratio of the total US national debt to GDP in recent months, it seems to be declining much faster than M2/GDP. It seems that the US government is more intensive in reducing liquidity. . Observing specific data on the total amount of U.S. national debt, the historical total value of U.S. national debt was 30.7816 trillion U.S. dollars in February 2022, while the latest data for June 2022 was 29.2176 trillion U.S. dollars. That is, after the latest four months, the total market value of U.S. Treasury bonds has dropped by more than $1.5 trillion.
In the past two years or so when the market value of U.S. M2 and Treasury bonds peaked this year, U.S. M2 has grown by about $6.5 trillion in absolute terms, while the total value of U.S. Treasury bonds has grown by about $6.6 trillion in absolute terms, and the two items totaled about $13 trillion. , the absolute intensity of the two (the intensity of liquidity easing) is exactly the same.Therefore, the U.S. dollar interest rate has increased significantly in recent months, and the tightening effect corresponding to the increase in debt costs is mainly reflected by reducing debt. The U.S. M2 money stock, which seems to be more related to the Fed's actions, has not declined significantly.
In recent months, the U.S. M2 stock has definitely not dropped much, but the market value of U.S. Treasury bonds has dropped significantly. Does this mean that the U.S. government is more prudent and smarter than the Federal Reserve in liquidity control? This is not the case. The U.S. government’s “connivance” of liquidity far exceeds that of the Federal Reserve. Investors are kindly requested to compare and observe M2/GDP and U.S. Treasury bond market value/GDP. It is not difficult to see that the M2/GDP cycle bottomed out in 1995-1999 (46.97%). , and the U.S. Treasury market value/GDP cycle bottomed out in 1980-1982 (27.58%). The U.S. government condoned the flooding of liquidity more than ten years earlier than the Federal Reserve.
Observed from the changes in the ratio, after the US M2/GDP bottomed out at 46.97% in 1997, it seems to have peaked at 96.17% in 2021. After the U.S. Treasury market value/GDP bottomed out at 27.58% in 1982, it peaked at 149.14% in 2021. There is undoubtedly more room for growth. Even if M2 is compared with the low near 1997, the market value of U.S. Treasury bonds/GDP has risen from below 60% to 149.14%, which is much greater than the upward trend of M2/GDP. Therefore, in the past two decades or so, the U.S. government’s liquidity easing efforts (fiscal strength) have been far greater than the Fed’s monetary easing efforts, but it is the Federal Reserve that is responsible for taking the blame for the easing responsibilities and consequences.
Attached below is a historical comparison chart of U.S. federal funds interest rate , U.S. CPI price index, and U.S. unemployment rate changes in the past 70 years:
The vicinity of 1980 is a major cycle dividing point, and the previous two decades corresponded to major inflation. Cycle, a big cycle of rising interest rates. The unemployment rate is mainly reflected in mid-cycle fluctuations. The unemployment rate bottoms out in the mid-cycle, which usually corresponds to the second half of the mid-cycle economy starting to deteriorate.
Looking at the current situation, will 2020 be the starting point of a super inflation cycle? This possibility cannot be ruled out. The current U.S. unemployment rate should be at the bottom of the mid-cycle. If the U.S. unemployment rate is bound to rise during the mid-cycle, it should correspond to the second half of the deterioration of the U.S. economy.
On Thursday, the U.S. Department of Commerce announced the initial value of the U.S. second-quarter GDP annual rate, which was -0.9%, and the first-quarter data was -1.6%. In the first two quarters of this year, U.S. GDP data declined year-on-year, showing the characteristics of a recession in the technical sense. However, U.S. officials believe that the U.S. economy has not entered a recession in the standard sense, and Yellen’s speech on Thursday after the second quarter GDP data was released also had the same tone. Although the author has always been disparaging of U.S. monetary and fiscal policies and politics, I agree that the current U.S. economy is not a recession in the standard sense. An economic recession in the standard sense basically means that the economy is stalling across the board, and demand in all fields has declined across the board. Energy demand is no exception, and labor demand is weak... The current U.S. economy obviously does not have such characteristics.
In addition, the author would like to remind investors not to follow quarterly GDP data blindly. It may show strong jumps and occasionally be affected by solar terms, making it impossible for investors to grasp the economic trend. For example, the monthly K-line of the international spot gold price from 1971 to 2022, the annual rate of U.S. quarterly GDP, and the U.S. quarterly GDP from 1900 to the present - TTM-year-old year-on-year growth rate graphic:
3
As can be seen from Figure 2, in the approximately 30 years since 1991, the annual rate of quarterly GDP in the United States has been running below zero for two consecutive quarters. Except for this year, it was only in 2008 that it fell for four consecutive quarters. During the economic and financial crisis of 2000-2002, the annual U.S. quarterly GDP rate swung around zero in a zigzag pattern. The economy and market interpretations were complex, and it was difficult to grasp the mid-term trend of the U.S. economy through GDP data.
Observing the annualized nominal growth rate of U.S. quarterly GDP in 120, the nominal growth rate of U.S. GDP in recent quarters is actually good. The nominal GDP-TTM annualized growth rate in the first quarter of 2021 was 2.59%, and the growth rate in the second quarter of 2021 was 2.59%. It was 16.76%, 9.76% in the third quarter, 11.76% in the fourth quarter, and the growth rate in the first quarter of 2022 was 10.66%. The latest annualized GDP-TTM in the second quarter was 24.851809 trillion U.S. dollars. Compared with the annualized GDP-TTM in the second quarter of 2021, which was 22.740959 trillion U.S. dollars, the growth rate was 9.28%. The data looks quite good.It can also be clearly seen in the figure that the annualized nominal GDP growth rate of the United States in the 120 quarters has been the strongest in the past 40 years in recent quarters.
However, all the seemingly good appearances are ruined by the current severe inflation in the United States. I don’t know the method for calculating U.S. GDP at comparable prices. The U.S. CPI price index at the end of the second quarter was 9.1%. Even if CPI is excluded from nominal GDP growth, it does not seem to reflect negative growth. This shows that U.S. inflation may still have deep "structural contradictions." Some areas that account for a larger proportion of GDP may have more severe inflation, such as the housing market.
3 The US dollar is at the top of the macro cycle
Regarding the gold market, we emphasized in an internal report last week that the US$1,680.20 corresponding to the euro before a sharp interest rate hike may be the gold price stage or mid-term bottom. In the internal report last weekend, we further emphasized that the Federal Reserve is very likely to raise interest rates by 75 points this week, and does not even rule out the possibility of raising interest rates by 100 points. However, this will correspond to the determination of the gold price stage or the mid-term bottom. After the interest rate hike is implemented, the gold price should break away from the bottom. Go higher. Recently, new customers have been lucky and got a good opportunity to go long.
Although the U.S. dollar is still likely to raise interest rates by 75 points in late September, we believe that the U.S. dollar index has basically determined the top of the major cycle, and the systemic risk corresponding to the gold and silver market is no longer significant. The fact that the US dollar is at the top of the macro does not mean that the US dollar index will not reach new highs. The author prefers that the US dollar index may show high and strong fluctuations in the medium term. At present, it is unlikely that the US dollar index will directly turn bearish.
Logically, after the European Central Bank sharply raised interest rates by 50 points last week, although the Fed's 75-point interest rate hike this week caused the interest rate differentials between the U.S. dollar and the euro to continue to widen, at least the rate of increase in interest rates has slowed down. In the mid-term outlook, the overall interest rate hike of the euro may exceed that of the U.S. dollar, causing the interest rate differential between the U.S. dollar and the euro to narrow from expansion, which theoretically constitutes a negative for the U.S. dollar. In addition, if the U.S. dollar only raises interest rates by 50 points in September, it may be negative for the U.S. dollar. Given that the absolute interest rate of the U.S. dollar is already quite high by then, it will be almost impossible for the U.S. dollar to raise interest rates by more than 50 points in the later period, while the euro has more room to imagine raising interest rates.
Our analysis in the internal report on July 6 pointed out that in terms of the fundamentals of the U.S. economy, a further rise in the U.S. dollar index will have an impact on the U.S. economic and financial operating environment. As the U.S. macro-economy seems to be in the early stages of a weakening mid-cycle, the continued rise of the U.S. dollar will worsen the U.S. economy and impact U.S. stocks . Moreover, the currency itself is a barometer of economic strength. If the U.S. macroeconomic situation is bearish, it will inevitably constrain the strength of the U.S. dollar. Of course, the U.S. dollar may have a passive upward logic against the background of the euro's active decline, but this logic should have a certain relationship with the interest rate differential trend between the euro and the U.S. dollar. After the U.S. dollar raised interest rates sharply this month, the euro may enter a rate-raising cycle. From then on, even if the central banks of Europe and the United States continue to raise interest rates and tighten the pace, the dollar may still be strong. The following picture is the corresponding interpretation of the dynamic monthly K-line chart of the US dollar in the internal report on July 6, which does not affect the understanding of the operation of the US dollar index today at all:
Whether it is the "USD Comprehensive Indicator" designed by the author for the US dollar index, or the US dollar The monthly KD and RSI indicators both show that the current US dollar index is at a "cycle high", as shown in the figure at the positions of A, B, C, and D. What is more interesting is that these four positions correspond to four rounds of economic and financial crises or crisis expectations. It’s just that the economic and financial crisis expectations at position C lagged behind to 2015/early 2016. At that time, many opinions (including Soros) expected that an economic and financial crisis comparable to 2008 was coming. Although the economic and financial crisis at position C is expected to lag far behind, it has curbed the strength of the US dollar. Regarding the economic and financial crisis in 2016, the author’s view after in-depth research at that time was that that economic and financial crisis could be avoided. But this round of U.S. economic and financial crisis is inevitable, just like positions A and B in the picture. Regardless of whether the crisis is complex like the time-for-space situation in 2000, or violent like 2008, the U.S. economic and financial crisis is inevitable.
Figure 2 is the “comprehensive indicator” designed by the author for the US dollar index.When the indicator moves above the bullish small top, we must pay attention to the risk of the U.S. dollar phase or mid- to long-term systemic peaking. There are strategic risks in continuing to be systematically bullish on the U.S. dollar. Of course, in terms of the effectiveness of the "comprehensive indicators" of several financial products designed by the author, the "gold price comprehensive indicator" has the greatest reference effectiveness. However, based on the observation of the comprehensive indicators of the U.S. dollar index, at least the "bullish top" is of great reference value in warning that the U.S. dollar bull market cycle is roughly in place. At present, the dynamic US dollar comprehensive indicator is asymptotically approaching the "bull top", and the US dollar's systematic overbought state is stronger than in 2000 and 2008, and only weaker than at the beginning of 2015.
Small picture 3, the US dollar monthly KD indicator K value, after breaking through 80, we must pay attention to the risk of stage or medium and long-term peaking. It is still in the strongest overbought state in more than 20 years, which is only weaker than 2015.
Small Figure 4, the monthly RSI indicator of the U.S. dollar index. When positions A, B, C, and D in the figure enter the pink overbought zone, it means that the U.S. dollar index is roughly at the top of the medium and long-term cycle, and it is not appropriate to be strategically bullish on the U.S. dollar.
When we are worried that the macro bull market in the gold market will be difficult to continue, it is inevitable to compare it with the macro bear market in the gold market in 2013. Looking at the U.S. dollar index in 2013, it was at the bottom of a mid-cycle cycle. The U.S. dollar index is undoubtedly at the top of a medium- to long-term cycle. Although this top may appear complex, it will not affect our systematic judgment on the gold and silver market. Regarding the comparative analysis of the fundamentals and cycles of the current gold market and that before the bear market broke in 2013, the last weekly review gave a detailed explanation.
Macro technical form, such as the monthly K-line diagram of the US dollar index:
Observe the entire macro band from the US dollar index peaking at 121.01 points in 2001 to bottoming at 70.68 points in 2008. In recent years, the ten-year line (120-month moving average), the twenty-year line (approximately 250-month moving average), and the 38.2% golden section of the macro bear market rebound have constituted the mid-term adjustment support for the U.S. dollar index and corresponded to the 2009 and 2010 The U.S. dollar bottomed out at 70.68 points and was supported by two mid-term strong rebounds.
The mid-term strength of the U.S. dollar that began in June 2021 has basically touched the 80.9% golden section of the macro bear market rebound of 121.01-70.68 points, corresponding to the counter-pressure at the bottom of the macro top box of the U.S. dollar in 2000/2001. The 13/14-month unilateral upward cycle also has a strong meaning of the peak of the medium and long-term cycle. Observing the absolute growth rate of the U.S. dollar’s strong cycle from 2021 to now, the overall upward space of about 10,000 points is also close to the overall upward space of about 11,000 points after May 2014. The U.S. dollar may have peaked in the big cycle.
observed the "Original Wave" of the macro bottom bull market in 2008 when the U.S. Dollar Index bottomed at 70.68 points and peaked at 89.62 U.S. dollars in 2009. The wave's upward 161.8% golden section constituted effective mid-term counter-pressure for the U.S. dollar's rise from 2015 to 2020. At present, the US dollar index has further risen to the 200% position of the "original wave", which is also a strong resistance position in macro-technical theory, and corresponds to the 1/3 line counter pressure of the speed resistance line 2 in the diagram. The technical effect of the 1/3 line of the speed resistance line 2 in the figure is "very interesting". From the second half of 2018 to the second quarter of 2020, the U.S. dollar index was almost exactly under the counter pressure of the 1/3 line. And the diagram shows the 161.8% golden section line , the 2/3 line of the speed resistance line 1, and the 1/3 line of the speed resistance line 2, which are the source of upward waves. They resonate and focus to accurately measure the peak of the U.S. dollar index rebound in 2020. Points in space and points in time. At present, the U.S. dollar index is once again testing the 1/3 line of counter-pressure, and there is still a possibility of a macro peak. In the mid-term observation, the gluing point between the 200% position and the 1/3 line of the speed resistance line 1 can be used as a reference for the mid-term time period.
In addition, the distribution characteristics of the net positions of hedge funds in the six major foreign exchange futures markets still have the reference value of warning that the U.S. dollar index has reached a macro peak. The following chart and corresponding analysis are still from internal data on July 6 Report. For example, the daily K-line of the U.S. dollar index from 2013 to the present and the changes in the U.S. dollar net positions of hedge funds in the six major foreign exchange futures markets are illustrated:
First, compare the U.S. dollar net positions of hedge funds in the six major foreign exchange futures markets with the U.S. dollar index. It is not difficult to observe the daily K-line pattern and find that the mid-cycle trends are generally synchronized. This shows that hedge funds generally have a good grasp of the mid-cycle trend of the U.S. dollar index.
However, based on the observation of the mid- to long-term pattern after the U.S. dollar index rose strongly to 100.40 points in 2015, the U.S. dollar index’s macro-band upward trend was generally higher, but the top of the U.S. dollar net positions of hedge funds in the six major foreign exchange futures markets continued to decline, as reflected in the following Funds’ recognition of the value of systematic long investments or speculative opportunities in the U.S. dollar is becoming less and less clear.
Even at the tail end of each mid-cycle, hedge funds still reflect this judgment. At L1 and L2 in the figure, the trend of hedge funds' net U.S. dollar positions deviates from the actual operating trend of the U.S. dollar index (H1, H2), which reflects that hedge funds are not optimistic about the continuation of the U.S. dollar's mid- to long-term bull market. The actual operating results of the U.S. dollar index show that the U.S. dollar's mid-term bull market is indeed likely to peak.
In recent months (December 2021 to the present), the trend L3 of hedge funds’ net U.S. dollar positions in the six major foreign exchange futures markets has deviated even more extreme from the U.S. dollar index operating trend H3. The latest net position of hedge funds in the U.S. dollar in the six major foreign exchange futures markets is 13.649 billion U.S. dollars. The high point of this round of hedge funds’ net U.S. dollar positions occurred in early December 2021, at $23.999 billion. Therefore, although this round of divergence between L3 and H3 is very extreme, just like the divergence between L1 and H1 and the divergence between L2 and H2, it will eventually be reflected in the mid- to long-term peak of the US dollar index.
Finally, I need to add that hedge funds’ willingness to invest or speculate in gold exceeds their interest in the U.S. dollar most of the time. Even with the weak performance of gold prices in recent months, the market value of hedge funds' net gold positions in the COMEX gold futures market is still as high as US$28.6 billion, far exceeding the funds' net long positions of US$13.649 billion in the six major foreign exchange futures markets.
The information on the net U.S. dollar positions and the net value of COME gold futures positions of hedge funds in the six major foreign exchange futures markets in the previous paragraph is as of June 28. As for the latest capital information observation as of July 19, the fund’s net long U.S. dollar positions in the six major foreign exchange futures markets were 18.97735 billion U.S. dollars, which is still far lower than the current high of U.S. dollar net positions in early December 2021 of 23.999 billion U.S. dollars. The fund's net U.S. dollar position and capital trend have not changed at all, and the fund has little interest in the strategic long position of the U.S. dollar, which should correspond to the fact that the current strategic long gold risk is low.
observed the breakdown of data:
fund’s net short position of the euro against the U.S. dollar was US$5.46281 billion, an increase of US$2.3 billion from the previous period’s net short position of US$3.16686 billion, making it the largest net short position since mid-March 2020. However, the net long position in the U.S. dollar did not once again refresh the new high of 23.99869 billion U.S. dollars set in November 2021. The current net short position of the fund in euros was 3.29485 billion U.S. dollars, which was equivalent to the net short position of the fund in euros the previous week. The new high of net longs in the U.S. dollar in the current period mainly comes from the support of short selling of in Japanese yen, Australian dollar, and Canadian dollar;
fund Australian dollar has a net short position of 2.97505 billion U.S. dollars against the U.S. dollar, which is roughly the same as the previous period data of 2.81091 billion U.S. dollars;
base The net short position of the gold pound against the US dollar was US$4.29232 billion, which was little changed compared to the previous period's net short position of US$4.38920 billion; the
fund's US dollar against the Japanese yen net short position was US$5.35756 billion, which was a change from the previous period's net short position of US$5.47971 billion;
htm The l4 fund has a net long position of US$518.03 million in US dollars against the Canadian dollar, compared with a net long position of US$269.20 million in the previous period, a slight increase of approximately US$250 million; the
fund has a net short position of US$1.40764 billion in US dollars against the Swiss franc, compared with a net short position of US$1.11049 billion in the previous period. , increasing the position by about US$300 million, the power of increasing the position The degree is not large;
sub-data It is not difficult to see that last week, the fund’s net long position in the U.S. dollar in the six major foreign exchange futures markets increased from 16.68797 billion U.S. dollars to 18.97735 billion U.S. dollars, an increase of 2.3 billion U.S. dollars, mainly from the fund’s euro against the U.S. dollar Due to the increase in headroom, it was also approximately US$2.3 billion. The fund has not obviously continued to be long in the U.S. dollar in other foreign exchange futures markets, especially in the Australian dollar, Canadian dollar, and Japanese yen futures markets that support the strength of the U.S. dollar in the fourth quarter of 2021. The fund is already operating in the opposite direction, so once the euro falls into place , which should correspond to the peak of the US dollar index. The trend and expectations of interest rate spreads between the US dollar and the euro may be important influencing factors.
In addition, judging from the operation of the U.S. dollar index in a basket of currencies by hedge funds, the fund's net long position in the U.S. dollar index last week was US$4.16866 billion, which was almost unchanged from the previous week's US$4.14799 billion. And data in the past six weeks show that the fund’s net long position in the U.S. dollar index has only fluctuated within a narrow range of $4.1-4.7 billion.
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