Vive la France, Vive l'Euro

April 24, 2017 - 6:18pm

 by Gary Wagner

The euphoria surrounding the outcome of France’s election sent shockwaves throughout the global financial markets, as concerns as to whether France would leave the European Union diminished.

Election results showed that Emanuel Macron was a slight favorite for next month’s runoff against the nationalist candidate Marine Le Pen, moving European equities to a 17-month high. As this was truly an election of French global policies, at least for today, globalism won over nationalism in France.

This sigh of relief created a strong risk-on environment that moved from Europe to the United States. This resulted in U.S. equities staging a major rally, with the Dow Jones Industrial Average trading up 216 points, a net gain of +1.05% to close at 20,763.

The respectable gains in both the Dow Jones and the S&P 500 did not move their closing price above record highs. However, today’s 74-point gain (+1.25%) in the NASDAQ Composite took that index to 5984.30, a new record high.

Gold and U.S. Dollar Weakness

The election results were incredibly supportive of the Eurodollar, which gained roughly 1.15%, after trimming the 2% gains earlier in the trading day. The direct reciprocal result was a weak U.S. dollar. The U.S. dollar closed down 94 points at 98.94 (-.94 %), losing almost a full percentage point in trading today.

The weaker U.S. dollar, of course, was supportive of gold. However, the net effect of a weak U.S. Dollar was not enough to compensate for aggressive selling of gold. Trading to a low of 1265 this morning, spot gold trimmed its losses closing off by approximately $7.80 at 1276.60. According to the KGX (Kitco Gold Index), sellers in the market drove gold prices $16.90 lower. However, after adding $9.10 for the net change due to a weak U.S. dollar, gold finished the trading day $7.80 lower.

Don’t Count Out Geopolitical Tensions

There has been a renewed level of optimism now that the current tensions between North Korea and the United States have subsided a little bit. This is based on new interactions, as well as pressure being placed on North Korea by China.

Per CNBC, “One thing we're seeing is a tactical adjustment on Beijing's part to Trump," said John Delury, associate professor of Chinese studies at Yonsei University in Seoul, South Korea. "There's a kind of game here where Beijing is playing along to a certain extent, almost to call Trump's bluff, and to get the Americans to recognize they have the key in their hand to unlock the problem."

"The key is not military. When you start to look carefully at the military options, they are horrific, just given the economic vulnerabilities of everyone in this neighborhood," he said. "The key the U.S. has is diplomacy."

Inasmuch as we hope and pray for a peaceful resolution to the North Korean conflict, the fact is that according to this administration, “the era of strategic patience is over.” The American Armada, led by the Carl Vincent aircraft carrier, is steaming into the northern Korean peninsula, and North Korean rhetoric is ratcheting up. In response, the North Korean government has issued a warning that it was ready to sink the carrier.

The U.S. Armada has now gained more strength with the addition of two Japanese destroyers, joining with the U.S. carrier group.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action
Last Tuesday (April 11)  we sent out a trade alert:  Major breakout above resistance. June gold up 19 dollars at 1273. Buy gold at market (1273 current). Stop under 1260. Last  Wednesday morning we raised our stop and sent a trade alert to that effect.
About 60% of subscribers kept their stops where they were, and the remaining 40% pulled profit.
For those who are still long: Maintain long gold at 1273. Maintain current Stop, if stop was not hit today.
For those who had stops hit: In @ 1273 out @ 1278 for a profit of $5.00 or $500 per contract. We will send a Trade Alert when it is time to re enter the market from the long side.
Gold Market Forecast

Even a weaker US dollar which was down almost a full percentage point today could not curtail the utter carnage that existed in the gold pits. Considering that spot gold today contained a boost of roughly 9 dollars based upon a weaker US dollar, gold still close strongly negative losing approximately eight dollars in the cash market. Futures traded under even more pressure than spot prices closing roughly $12 lower on the day. I today's video we will detail our current levels that we believe will provide technical support for the market. As we stated on Thursday we are awaiting a dip to reenter the market from the long side, and although we have seen the market dip today I simply want to see where the dust settles before issuing a trade recommendation.

Trending Markets Forecast

On Sunday France held election and based on the results propped up the Eurodollar. This of course put tremendous downside pressure on the US dollar, but more importantly began a equities rally which would inevitably move over into US equities. European equities closed at a 17 month high, the NASDAQ closed at a new record high, and the Dow as well as the S&P 500 both gained over a full percentage point on the day.