Watch this level in the Dollar Index
FX:
Non Farm payrolls were 1/2 of the expected 100k,
which should weigh on the dollar today after what looks to be a five wave move
from Nov 2. We’d expect a correction to hold above 89.50 today b/c yields are
stronger which should underpin the USD over the coming weeks to months.
Six weeks ago we showed to you the top chart
below of the dollar index with the “Key” level labeled. We said a move above
here would reverse our previous expectation for a larger pullback in September
to the 85 level and mean the 86 low was the bottom of the correction from July.
Since moving above here we have remained bullish
with risk limited to the very same level. We have kept this chart as a reminder
that while anything is possible in the markets, some things are simply more
probable.
The dollar index then rallied above the key 38.2%
Fibonacci Fan line from the 2002 highs which we said was highly significant. So
we said any pullbacks should be limited to this area. We then chopped between
the July highs of 90.75 and the key level at 88.50 until last week when we said
the “wave 2” low was in and traders had a low risk opportunity to go long at the
very level we turned bullish on six weeks ago.
We give you that short play by play, because the
dollar index is 1/2 of a percent from breaking above the key 90.75 level that
would break the neckline of an four month inverse head and shoulders pattern.
The 90.75 area is a highly significant level going back nearly a decade as it
has offered both support and resistance. Therefore, a move through here would
likely spark a large wave of buying.
Our wave count also puts the dollar index in
“wave iii of 3 of III” which is the explosive part of any move. Therefore, it is
interesting to see these line up so well.
Meanwhile, gold’s bounce off of $459 stopped at
$475 this week and is jeopardy of breaking the key neckline at $459 today. As we
said, “We continue to expect dollar liftoff in the coming weeks as a break of
the neckline in gold would suggest a larger decline targeting $425 was in order.
This would coincide with a larger degree inverse head and shoulders pattern in
the dollar index that could propel it to the 95/100 target area we have
forecasted since last year.”
“Therefore, we continue to think our EW count
below showing “waves 1 and 2” are complete is correct. Only a move below the
“Key” level at 88.40 would undermine the bull case. But it will take a move
above key resistance at 90.75 to see some fireworks.”
Stocks:
Until two days ago the market still looked like a
complex upward correction. The move through 1,205 has violated our near term
wave count and the near term bearish implications. But it has not changed our
view since last year that the 1245 area should mark a significant top.
Long time readers will recall that we said the US
markets would top out first this year followed by European then Asian bourses.
The Dow topped in March, followed by the S&P in August then European bourses in
September. The Nikkei and All Ords look like they have some life left but the
Morgan Stanley Global Stock Index has likely topped in a wave 5 of V terminal
move.
With global indices only now topping the US
equity bears must take charge here immediately and drag the S&P500 below 1165 or
face the prospects of giving the bulls a strong base to rally from. As such, we
will need to see a clean break of 1165 to get the downside rolling.
The market has a range of about 5% with massive
resistance at 1245 and major support at 1165. Only a move through these levels
changes the outlook to outright bullish or bearish.
Bonds:
We remain bearish on bonds since turning that way
five weeks ago. The 10-year yield finally made a convincing move above the 4.6%
level yesterday. The sustained move above the key 4.5%/4.6% level and is
encouraging to our view that global bond markets have topped.
Regards,
Jes Black
FX Money Trends
613 4th St Suite 505
Hoboken, NJ 07030
Tel: 646.229.5401
Jes
Black is the fund manager at Black Flag Capital Partners and Chairman of
the firm’s Investment Committee, which oversees research, investment and
trading strategies. You can find out more about Jes at
BlackFlagForex.com.
Prior
to organizing the hedge fund he was hired by MG Financial Group to help
run their flagship news and analysis department,
Forexnews.com. After four
years as a senior currency strategist he went on to found
FxMoneyTrends.com – a research firm catering to professional traders.
Jes
Black’s opinions are often featured in the Wall Street Journal, Barrons,
Financial Times and Reuters. He has also written numerous strategy pieces
for Futures magazine and regularly attends industry conferences to speak
about the currency markets.