Last week, it was absolute horror for some commodities. After making a blow-off top, silver got crushed! You had to pay almost $50 for the white metal at the start of the week, while on Friday, silver was on sale for less than 35 bucks. It’s was recorded the fastest price drop in silver since 1975!
Also oil got hammered. The ‘liquid gold’ dropped from price levels above $115 to below the magical $100 a barrel barrier in barely five trading sessions. As a matter of fact, most commodities within the complex sold off… except for gold, which stubbornly traded around the 1500-dollar-level.
The strength of gold is even more remarkable when you take into account the recent volatility on the currency markets. While most pundits were wondering what caused the commodity sell-off, we noticed fireworks in the euro-dollar pair, where the euro got clobbered from 1.495 to 1.435 in only two trading days: a vigorous move which is almost unseen!
Not only did the US dollar gain strength versus the euro, but against most other fiat currencies. As a result, the USDX rose from its grave, shooting up from 73 to 75 in a blink of an eye.
The powerful dollar turnaround kicked in last Thursday, when things got clear that the ECB wasn ‘t prepared to hike its short term interest rate any further. This event wrecked the euro-party as most market participants were positioned for some more strength of the European currency, while further EU rate hikes were being priced in.
Of course, astute investors know that there is no such thing as a free lunch on financial markets, especially not on currency markets. Meanwhile, the smart money was already taking cover. Those who closely follow the action on the future markets, noticed the impressive rise in short contracts for the USD.
Starting May, net short positions represented 200,000 contracts, totaling $36.1 billion, a level not seen since January 2007! What’s more, net long positions for the euro rose at a ridiculous speed last week, ballooning up to 99,500 contracts, an increase of almost fifty percent.
For us, these moves have ‘dollar short squeeze’ written all over it. We wouldn’t be surprised if this could be the start of the monumental shift for the USD against most of its fiat competitors, as was the case when we noticed the Silver Short Squeeze on Zerohedge… right before the price of the white metal exploded!
When the EUR/USD pair sinks below its 50MA, currently hovering around 1.42, we will be seeing 1.35 in a few weeks from now. And taking into account the humongous short on the US dollar, we wouldn’t be surprised to see the euro tank further during the summer.
Our advice: keep your eyes the currency markets in the coming period, as we think bargains will once again arise when everybody is laying on the beach! We won’t be leaving our desks…