The Dollar continues to frustrate our bullish outlook
The dollar rallied to new weekly
highs against the Swiss franc and GBP but continues to frustrate our near term
bullish outlook as EURUSD remains above the key 1.2680 level. A move
in USDCHF above 1.23 would be an encouraging sign and would then target
resistance at 1.2400/35.
But as we have repeatedly said, “The ongoing inability to take
the euro below key support at 1.2680 makes us very cautious about the dollar’s
recovery despite it being clearly oversold at current levels and attractive to
us from a risk/reward standpoint. We are looking for a sustained move above 85
to then target 86. We are bullish with risk limited to above last week’s lows.”
** Note in the chart above how cyclical and seasonal trends have turned bullish
for the dollar once again…
Gold: Gold has held above the previous channel resistance
turned support which we first pointed out to you on Monday. Ability to hold
above here after a clear five wave decline means we may now see a corrective
recovery back to the key $680 support/resistance mark. In the medium term prices
appear to be headed back to our taget of $600/$540 that we said two weeks ago
would be cleary attractive to traders. Recall that a top here at $720 will mark
the end of “wave 1 of V” meaning a pullback to $600/540 would be “wave 2 of V”
followed by an explosive rally in “wave 3 of V” to new all time highs.
Stocks: The S&P 500 continues to hold above the 1,250 level
which will be critical to the bull/bear dynamic. On Monday we said to expect a
larger relief rally over the coming sessions. But as we have said before,
history shows that peaks in the Fed’s rate cycle are coincident with stock
market tops so we expect to see a break below 1,250 eventually, which will be
the only thing allowing us to turn outright bearish on this bull market.
Bonds: No change: We have said for 5 weeks now to look for a key low around
104/105 in the 10-year note and to expect a bounce back to 107 near term. Bonds
are bouncing higher from this declining wedge type pattern as expected but this
bounce should not be that strong as global bond markets are pointed
significantly lower. Therefore, we might rally back to 107 in the coming weeks
before heading lower again.
Crude Oil: No change: The corrective process from the $74
highs should still hold above support at $68. If this holds we still the
pullback is “wave (iv) v of 5 of V” meaning the next advance to marginal new
highs around $78 will signal THE TOP of this move. That move now appears under
way.
While not expected, an “extended fifth” wave would mean that
this is just the first leg up within a larger move. That seems unlikely, but the
implications are that either we could top out at $78 or possibly at $82. A
prudent move would be to take some profits there and wait for a pullback to add
back to longs in the hopes of higher highs in the $82-$92 range.
Recommended long at $55 last November. Still looking for a
move to $80-$100 over the coming months.
***** No change: NatGas appears to be in the final “wave 5” move we first
counted out for you in February. However, the initial rally we were expecting
was only “wave 4” which means the puking of weak longs appears to be what
transpired this past month.
While we think commodity prices are set for a significant pullback, and that
NatGas in the US is overvalued relative to global prices, we see the sharp
pullback as an opportunity to position long for a bounce back to ata least
$8.50/$9.50 over the coming months.
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.
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