DeepSeek and Tariffs.
Issue #11. Historical events break historical patterns. Where are we now?
For the last Breakout issue, click here.
In this issue we will review market moves, see how our stance and expectations from previous issues has been playing out plus formulate hypotheses about future moves.
All this within the context of the fundamental backdrop — namely:
A harsh environment, after a benign one. i.e. Rising conflict between east and west.
Tariffs by Trump and an eventful Trump 2.0. Trade Wars commencing.
Above-average inflation.
A Periphery to Center Dynamic, where capital is fleeing the periphery and moving to the centre. More on this later.
The DeepSeek sledgehammer thrown on the whole Semis/AI cycle, by China.
Passive Investing still growing etc.
Gold
Let’s start with Gold, the ultimate asset to defend against currency debasement.
With Trump 2.0 rhetoric, and where Western economies are today — future currency debasement at above average rates is practically a certainty.
Of course, Gold isn’t the only asset you can protect yourself from inflation, right? More on that later.
We identified and wrote about the two breakouts you can see in the chart above, from 2024, in previous Breakout issues. They both gave good gains. First one indicated by the blue arrow, second by the yellow range.
Now Gold finds itself at ATH and will probably make a run for $3K as Trump picks up the pro-inflationary rhetoric. Tariffs and all. Simply speaking, Gold is in a solid uptrend.
Moving on to the Dollar…
Dollar Index (DXY)
The DXY broke above our long-term 7% range (refer to previous issues) and is still holding up. Two themes are causing this: 1) sticky inflation which forced J-Pow to shift the Fed’s rhetoric about rate cuts within 2025 and 2) Trump rhetoric and all this hostility against other countries.
Turmoil and danger means capital flows to the CENTER (The US) and away from the periphery (everywhere else). So this dynamic is keeping the dollar up there — but I din’t know if I can play a long USD trade with this setup.
I guess the good trade will only come down the line as the Dollar gets even more overextended, and hence fragile to a beautiful reversal. We will keep our eyes and ears open for when that time comes. 🦉🫡
The Euro
The poor Euro gapped down this Monday after the Trump tariffs. The Euro is still the main driver for DXY strength, as it’s 40% of the index. The pair is now back down to the last low, and a hair away from PARITY.
The Europeans haven’t said a word in fact, and they probably feel that this is benefiting them as their exports get cheaper.. Long story. Their exports MAY be getting cheaper, but Europeans are getting poorer in the meantime. Idiotas…
As I’ve previously mentioned, I expect some movement from the EU within 2025. Either some sort of early-stage renaissance, developments on the Ukrainian front, political developments — or an amalgamation of everything.
I wrote this piece last month to review where the EU finds itself, and what can/should be done about it. In the piece I explain how Europe has lost its way, and what it should consider doing if it wants to stand a chance of resurrecting.
Until then, the Euro is expected to remain weak — just like European politicians! 🥺