The Euro needs to break this level to turn bullish
The dollar has recovered most of last
week’s losses stemming from a weaker than expected CPI number that
sent it reeling as traders interpreted it to mean the Fed will hold still at
5.25%. But stronger data since then has sent the dollar the other way only to be
followed by a lower than expected UoM sentiment survey this morning, thereby
keeping our outlook on the EURUSD in limbo as it trades between 1.27 and 1.30.
As we have said for some time now, “The euro still has to
overcome the key 1.30 area for the bulls to get excited and our long AUDUSD and
MEXUSD continue to provide a suitable vehicle for dollar weakness. Despite what
looks to be an intermediate top in oil prices we remain steadfastly bullish on
key commodity currencies.”
Therefore, there is no change to our euro forecast. As we
showed two weeks ago, we still see the euro as being in a larger “wave 5 of B of
IV” type consolidation pattern. This means a final run at 1.30/32 should then
see a reversal back to 1.24/25.
No change in the dollar index: The dollar index broke below
trendline support from the choppy advance since the May lows which we said to
buy and have since taken profits from. As we said last week, “We think a move
below 1.23 in USDCHF and we think that the chart pattern suggests a move down to
1.18/1.17 is in order. A break below 85 in USDX has confirmed a near term
bearish scenario.”
Gold: No change: Gold continues to trend sideways in what may
be in “wave C,” down or a larger consolidation pattern. At this point it is not
clear.
What is clear is that another pullback in gold will offer
another great opportunity to position long since our call to buy near the
support zone at $540/$580.
Recall that while wave C down may be underway, we view this as
another opportunity to position long (similar to our view when “wave A” ended).
This is because we expect the correction from $730 to end the larger “wave II”
pullback followed by a soaring “wave III” rally.
As we have said for months now, “In the broader picture, this
long awaited correction is underway and recall that a top here at $720 will mark
the end of “wave 1 of V” meaning a pullback to $580/540 would be “wave 2 of V”
followed by an explosive rally in “wave 3 of V” to new all time highs.”
Stocks: No change: The stock market moved above the 1,290 area
opening the way for mid-channel resistance at 1,310. Only a move above here
would open the way for the 1,330 highs. We are more inclined to go short from
the 1,330 level and add to that upon a break below the 1,240 lows. Therefore,
with oil prices falling back and a peak in the Fed cycle happening concurrently,
the last time this happened stocks began to fall as well. So as we have said
time and again, “The market is extremely optimistic that a peak in the Fed cycle
will see a lower dollar and higher stocks. Unfortunately, history says the exact
opposite.”
Bonds: No change: Our bond forecast has been impeccable, as we
have called each of the little twists and turns and pivot points. Since prices
have effectively pushed through channel resistance crossing at 105.50, just as
we forecasted, this suggests that a larger rebound is underway.
We continue to see a rally to 107/109 followed by a renewed
decline below 104. The reason is that 104 will be a tough nut to crack the first
time around and the majority of players are already extremely bearish on bonds.
Crude Oil: No change: Crude prices fell again today after
breaking key trendline support from February and we are now headed to support at
$68. Note that the key trendline was breached as the Fed’s rate hiking cycle
peaked, which is often in line with the peak in production and oil prices. As we
said weeks ago, “Traders are still encouraged to take initial profits at the
$78/$82 range and to now tighten up remaining stops. If we do get a spike, a
move to $90/$100 would be were we look to cover and possibly reverse.”
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.