The dollar is strong and is going to stay strong.
The US is off the QE wagon and interest rates are going up. No one seems to believe it, but the Federal Reserve couldn’t make it any plainer.
Meanwhile Japan is QE’ing and Europe is about to go on a monetary easing binge.
So for the dollar the only way is up.
Deflation is still the global bogeyman and while the anti-QE lobby see only inflation, there doesn’t seem much of it about, not at least where it counts and where it is counted.
Gold investors are left bereft. Some will say cheap precious metals is great news for them as it means they can by more cheap, but this is definitely a stance for only the hardcore gold bug.
Inflation didn’t happen as expected because of wanton QE, all that occurred is the US government got to buy back trillions of its debts for nothing. Well not strictly for nothing, let us say it bought back a huge pile of expensive debt for lower interest rate debt or effectively cash.
It’s a nice move if you can get away with it and the US has.
So “long dollar” remains the trade of the decade, short Euro as I mentioned months ago has paid off monumentally. For the brave there is a lot more to come.
Oil is another victim. Has oil gone down, but wait a minute, is it that the dollar has gone up. It is likely both. There is a glut of oil, apparently, the end of QE has put the skids under the oil carry trade and the dollar has gone up.
All in all, this has crushed oil.
Is there more to come?
After years of $100+ oil, its hard to imagine oil even lower than it is today.
Markets are meant to be efficient. How can oil be $100 a barrel one day then a few weeks later be half that price.
Oil is a 28 billion barrel a year industry. Sales of $3 trillion are now $1.5 trillion. Turning around supertankers is meant to take a lot of time!
So what next?
Almost unbelievably Oil could take another leg down towards $30 a barrel. That is the view of many.
The following chart sets the scene.
This is a catastrophic looking chart. If it was a stock you’d expect the instrument was heading for bankruptcy.
But a commodity can’t do to zero.
So the conclusion from a technical point of view is Oil is near to basing.
Oil is therefore is shortly about to define its low and then for the brave it will be time to go long.
There won’t be any rush to get long Oil, but we are approaching a period when all things Oil will be worth looking at again because one thing is for sure, oil is cheap and the odds are high it won’t stay cheap forever.
The direction is clear, its just the timing that’s, funnily enough, going to be tricky to call.
If we get a classic W pattern emerging, oil won’t stay cheap for long.