Dollar Forecast Remains On Course, Here’s What’s Next
FX:
The dollar’s zig-zag move from the key 87.00 level
is shaping up as expected. Recall that we purchased USD/CHF at 1.2485 two weeks
ago when USDX was at this level then took profits on half that position as USDX
hit the 88.90 level because that area marked both the 50% retracement of the
previous 3-week slide and the 50-day moving average. Yesterday USD/CHF made
marginal new highs in a pretty clear “five wave” move, and the subsequent
pullback hit our trailing stop at 1.2585 this morning.
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But we are
back in the saddle again, having reinstated that position that was knocked out
at 1.2585 this morning with a fresh long at 1.2598 (9:28 AM) and stops just
below the day’s low at 1.2560. We think a “test” of these lows today is also
possible and we may look to add to this around 1.2580.
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The reason
we feel comfortable going long again is that as you can see below USDX is again
testing key channel support (blue boxes denote where we have gone long). As
such, this offers an extremely low risk trade setup, of the variety we like to
participate in.
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Our work
with seasonality suggests that we could still see the next leg up towards 89.00
in the coming days to weeks before the possible “September Mini-Crash” scenario
we have been talking about. Subscribers to our weekly report know what level we
are closely looking at to initiate shorts on USDX in case of this.
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Stocks:
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Yesterday
we said, “The stock market looks to be breaking down just as we have prepared
subscribers for.” The move below 1219 (the 50 Day MA and channel support from
the April lows) was the first sign of our bearish view taking hold. This area
will now act as resistance and as we have said repeatedly, “The August-October
months are historically the worst and considering that the S&P500 reached our
key Fibonacci target of 1245 this month suggests to us a downturn lies dead
ahead.”
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Meanwhile,
the VIX continues to climb as it tries to overcome resistance at 14 which has
capped its advance over the past 7 trading days.
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Bonds:
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The 10-year
yield is struggling to hold above its 50-day MA at 4.17%. As we have said for
the past few weeks, “This level needs to hold to stave off further decline in
yields (rally in bonds).” We broke below here on Tuesday and if stocks decline
over the coming months (as we expect) then yields may decline as well. However,
most instances of falling stock prices over the past two years have coincided
with a hiccup in yields. That is why we remain long volatility.
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Regards,
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Jes Black
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FX Money
Trends
613 4th St Suite 505
Hoboken, NJ
07030
Tel: 646.229.5401
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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.
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