The best trade for the next 2 weeks
FX:
Three failed attempts to take out 1.2450
last week and this morning resulted in a sharp breakdown in EUR/USD London
trade. But deep corrections are part and parcel of a “corrective” move which has
the euro/dollar in its grips. For the euro, this is the fifth “deep” correction
(by that we mean a move beyond the 61.8% retracement followed by new recovery
highs) since July as it remains in a choppy corrective move higher. This is
highly frustrating and we have been playing this from both sides (long when USDX
was above key channel support in orange – and short when it fell below). As
such, we still think long EUR/USD represents the best near term opportunity for
a move to 1.2750 over the coming two weeks as long as the key 1.2250 level
holds. Therefore traders should eagerly watch this level over the next 24 hours
to see if an opportunity presents itself to go long.
So there is no change in our outlook from last
week: “We still 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. 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.” As we showed in this weekend’s report, the speculators have
turned against the dollar for now, which we continue to think will result in a
decline to 85 over the next two weeks. Recall that the coming two weeks are the
most seasonally bearish for the dollar and only a sustained move above 87.50
then 88.00 (channel resistance) would alter our stance.
Unfortunately, proper risk management requires
stops and our long position from 1.2420 last Wednesday was stopped out this
morning at 1.2330. Even our signal service (Troodon) was stopped out for their
first loss in about a month. Nevertheless, key support now lies at 1.2250
offering an even better risk/reward setup. As such, we think a move above 1.2300
will see some buying interest and traders can look to go long in the
1.2250/1.2300 area with stops at 1.2230.
Stocks:
The three year rally underway is loosing momentum just as mutual fund cash
reserves reached a new all time low. The bounce we were looking for two weeks
ago from 1,200 carried past normal retracement levels and is looking to test the
key 1,245 level which marks the 61.8% Fibonacci retracement of the all time high
to the October 2002 lows. Only a move below here would cause us to stand aside.
Bonds:
No change: After a decline to 4.0% as we expected, yields bounced as the
possibility of an inverted yield curve is making it difficult to be short
shorter maturity bonds and long longer maturity bonds. There is little evidence
of any major trend developing at this time.
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.