Has The Fed Already Stopped Raising Rates?
FX
USD/CHF made a marginal new high in London at
1.2787 then came crashing down on the surprise drop in durable goods orders. The
perception is that the Fed may be done raising rates, which would line up with
our forecast from January that the Fed would stop raising rates in August at
3.5% which would coincide with a top in the dollar. So are the pieces of the
puzzle now lining up? Well, durables are volatile and this will do little to
affect the 12-month rate of change which remains well above the zero line. Only
a move below here would suggest the Fed is about to reverse course.
In any case, the 88.90 level is acting as heavy
resistance as this marks both the 50% retracement of the previous 3-week slide
and the 50-day moving average. Considering that USD/CHF made marginal new highs
in a pretty clear “five wave” move, we think this pullback makes sense in the
overall form. Recall that we remain long USD/CHF from 1.2485 with a trailing
stop at 1.2585.
In the chart below we have kept our forecast from
two weeks ago so that you may see how events unfold. Two Fridays ago we called
for a sharp dollar rally. We then covered 1/2 our profits last Friday (and
purchased a bit of gold) as we expected a pullback. That pullback we showed
would probably retrace about 1/2 the gains before another leg up into the first
week of September. With a Fibonacci five day rally, and a Fibonacci 3 day
pullback, the dollar needs to stabilize today around current levels to see the
next leg up towards 89.
So we still might see another bounce up to the 89
area 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.
Stocks
The stock market looks to be breaking down just
as we have prepared subscribers for. 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. Meanwhile, the VIX continues to climb since we added to our
position over two weeks ago – making for a nice 20% gain so far.”
Bonds
Two weeks ago we said a move back to 4.2% for the
10 year was likely. We also said, “This level needs to hold to stave off further
decline in yields (rally in bonds).” We broke below the 4.2% level on Tuesday
and if stocks decline over the coming months (as we expect) then yields may
decline as well.
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.