The Dollar is about to hit huge resistance — here’s how to trade it
FX:
Last night I was alerted by phone that the euro
had fallen below 1.2250. I shared this with my diner guest who is the head of
institutional sales at one of the largest FX dealing rooms in the US. He
lamented that for the past 2 months trading volume had dried up for his firm
dramatically because of the “lack of trend” and that many “system traders” had
simply shut down to preserve capital and sit it out in T-bills.
Since our primary business is managing money, we
too have sat mostly on the sidelines only to nibble on the market in the hopes
of adding to a position. For the most part we too are sitting in T-bills
awaiting a move to 85 in the dollar index to put our chips all in.
I share that with you today, because while our
call for a January-July rally in USD followed by an August-December decline is
on target, failed breakouts and deep corrections over the past 10 weeks have
been made any sort of “trend trading” a difficult job.”
Recall that yesterday we wrote, “The EUR/USD low
at 1.2250 occurred in conjunction with a nice bullish divergence on the 4 hour
charts, suggesting the euro is trying to turn the corner this morning. But USD/CHF
is not breaking down which forced us to stand aside until the market shows a
clean break. While it will take a sustained move above 1.2320 to be comfortable
going long EUR/USD only a sustained move above key resistance at 88.00 in the
USDX (channel resistance) would alter our stance.”
We waited for the move above 1.2330, but it never
came. Because of that failure the market broke lower to 1.2200 this morning.
This pushed the dollar index to 88.10, which is HUGE resistance as it contains
previous channel support turned resistance, current channel resistance, and the
50-day Moving Average (in red). Similar resistance is seen at 1.2700 in USD/CHF
so we will be looking at those two levels today on the charts and any sign of a
reversal from here would play into our “September Slide” scenario.
Stocks:
Stocks were rejected from the key 1,245 level
which marks the 61.8% Fibonacci retracement of the all time high to the October
2002 lows. A two-day slide took prices to 1,226 yesterday, but futures are up 1%
overnight and this will be an important day to watch for the bulls.
Bonds:
After weeks and week…..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.