Looking for the next tradable setup on the dollar? Wait for this level to get hit
A new subscriber asked why we
were not going short USD since we had long since forecasted the decline that is
now unfolding. Our short answer is that we wrote on September 1, "The fact
that (the dollar) didn’t reach our ultimate upside target suggests our
"September Mini-Crash" scenario is right on target. Even if it came a day early!
Unfortunately, we had hoped to short USDX from higher levels. So now that the
dollar is trading below its channel support, it suggests that USDX is completing
"Wave 1 of C" down. The next move should be a correction back to the underside of
this channel support followed by the "mini-crash" in "Wave 3" down."
The euro
topped the next day at 1.2591 on September 2 proving our "cautious" stance
correct as we waited for a pullback. But with the correction we were looking for
since last week now almost complete, we went long EUR/USD here at 1.2440 this
morning (10:35 AM) (with just 1/3 of a our cash position as we always start
out) with stops below 1.2300 for safety until a move above 1.2450 signals we can
move our stops higher.
We expect a
rally to 1.27 initially which corresponds to a decline in USDX into key support
at 85, where a number of technical tools suggest we should see a bounce. So
while we think traders can remain short USD into that support, we are looking
to close our EUR/USD long around 1.27 and go long USD/CHF when USDX is at 85.
Stocks: No change: In Sunday’s
report two weeks ago we said to expect a "bounce off of the 1,200 level. As long
as this holds, we favor a continued correction for the next couple of weeks
followed by a break below here which will see intensified selling pressure." So
far, so good on this forecast. SP500 hit 1204 and the futures dipped just below
1200 before staging an impressive rally over the past two weeks. Key resistance
for the bearish scenario is 1245
Bonds: No change: As we have said
for the past few weeks, an expected decline in stocks would likely force more
players to go long bonds, which they are doing now as the 10-year yield pushes
back to 4.0%.
Regards,
Jes Black
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.