You may remember on May 15th we identified a positive divergence in the Euro and a negative divergence in the $USD. I asked the question, "Does someone know something we don't?"
The charts from that day for the EUR/USD currencies can be found in this post...
Here's what happened the next day after that post...
One very influential financial website said, "The Euro is ramping up on no news" and made some reference to how dumb the market was. A few things stand out, 1) we saw this forming May 15th and the Euro lost downside momentum the next day and headed higher over the next few days, while the market that is nearly 100% correlated to the Euro went in the opposite direction to hit lows that formed the start of the current pennant pattern in the market. Why did the Euro run on no news, why was the move planned (we saw it 2 days before the Euro really turned up and a day before it went sideways from down)?
The divergences in FXE from Feb-late April make sense, they are the right size for the moves, this May divergence on a 30 min chart sticks out like a sore thumb, these are the kinds of divergences I look for for a real edge.
UUP's/$USD's 30 min chart seemed to make sense as well until May.
Even the price action itself is extreme, wedges and parabolic moves. UUP/$USD
EUR/FXE
Gold..
For some months I struggled to figure out what gold's correlation was, previous months had shown gold to be a flight to safety trade, other times it acted as a risk on trade with the market, at one point I figured it's just topping and doing it's own thing, but by paying attention to the news flow eventually a correlation revealed itself, one that made perfect sense. Strength in gold was a sign of market perception regarding Central Bank easing and why not? Look at gold's performance during easing periods such as QE1/QE2 and look at gold's performance since they ended. As far as risk assets, gold has the most to gain from monetary easing.
Which brings us to the horrible performance of the Euro, the strength in the $USD and the divergences in both that suggest there's going to be a turn around. From a professional FX trader's standpoint, a big move in the Euro (up) and down in the dollar would be a money making opportunity as the shorts in the Euro are so thick. The same logic can be applied to the market which is showing its own set of "similar" divergences.
Which brings us to a few comments I've made several times recently, "I wouldn't be surprised to see a round of globally coordinated easing" such as we saw in November or independent policy from the ECB or F_E_D.
Considering that, lets take a closer look at gold/GLD.
GLD vs the Euro in red, you can see there's a fairly tight correlation there, not perfect, but close and that makes sense considering the $USD.
However over the last 2 weeks or so, GLD has been lateral while the Euro has been trending down.
GLD vs $USD, here you see an inverse relationship, when the dollar goes up, gold goes down and vice-versa.
Recently though, the correlation is non-existient as gold tracks closer to the dollar than euro. Is it the easing perception?
When we first noticed something strange in the Euro/$USD the next day GLD bottomed and has been holding support there since.
Look at the intraday volume today as GLD touched that support above and then bounced off it.
On an hourly chart, a leading positive divergence this sharp rarely develops this fast, note it was even stronger at support this morning.
A 15 min chart since the 15th of May, again note the leading positive divergence around and at support.
Even intraday the positive divergence was huge on the touch of support.
The 2 min chart over the last week and a huge positive divergence at support.
I obviously would have no way of knowing if CB intervention was coming, all of the chatter out of Europe suggests the ECB is content to do nothing right now, however if you have an Ace up your sleeve, you aren't going to announce it to the world. There' a lot of money that would be made in a strong short squeeze.
Just something to think about as Gold breaks the normal FX correlation and exhibits some odd behavior lately.
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