The US Dollar remains in limbo
For those trading the Mexican peso, its
been a wild ride these past few days.
To start with, the lefty favorite somehow turned a immovable
3% margin of victory into a 1% loss on Sunday night, with a little help from
some fumbling bureaucrats who can’t count and somehow misplaced a fair number of
ballots in his district. The recount underway has so far shaved that margin down
to nearly equal, recalling memories of voter fraud in the US six years ago.
Whoever wins now, will be contested.
Regardless of who wins, the peso is near all time lows,
similar to the Brazilian real in 2002 when Lula, the lefty, won power. The real
has soared ever since and the Mexican peso remains a viable trade having broken
above the 50 day moving average on Monday and pulled back to this level this
morning for the second time this week. We favor going short USDMEX from current
levels as it sets to break below the uptrend support from the March lows
crossing around 11.05.
The US dollar remains in limbo today after the ECB kept rates
on hold and signaled that it remains “vigilant” on inflation, but has no idea
when it will raise rates. The point we have been making for 1.5 years now is
that Europe is a sclerotic economy and the ECB will be loathe to raise rates
unless they must. Rising energy prices and lackluster growth aren’t the type of
currency we want to buy.
As such, we have said to be short the US dollar against SE
Asian currencies, the Peso, and the Australian dollar. In addition, we think the
US dollar stands to gain against low yielding currencies such as the Swiss
franc, while we would rather stand aside from USDJPY until JPY shows us it is
ready to embark on a multi-year rally.
There is little change from yesterday. USD needs to clear
resistance at 1.25 in USDCHF while we also need to see a break below weekly
trendline support at 1.2550 in EURUSD to see a sustained move higher in the
dollar.
We remain long AUDUSD as the “wave E of 4” low of a 2.5 year
consolidating triangle pattern from the 2004 highs may have ended last week. If
so this is a low risk setup to go long near current levels for a move back to
the 0.78/0.80 level.
In USDX, our cited key support level of 85 held up nicely and
the rally underway today will face stiff resistance at 86.00/50 to see sustained
gains.
Gold: No change: Gold is rallying in what may be a
countertrend bounce or the next wave higher. What is clear is that our cited
support at $580/$540 served as the basing ground for our anticipated collapse
following a parabolic ascent. Our initial profit targets for the rebound from
$550 area are at $600 and $620. Only a sustained move above $680 would suggest
the next big move is up. If not, we will likely see another test of the $500
area before higher.
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: Stocks rallied sharply from the 1,250 mark.
But the normal MO for the bulls has been to bid stocks up on the rate hike
because the Fed sees stronger growth, but then selloff one or two trading days
later. So far there has been little change since the initial rally.
Key resistance is at 1290 and we would look to go short at this resistance with
risk limited to above 1330 or more cautiously on a sustained move below 1,250.
Go short with risk above 1,315. Add to position on a move
below 1245.
Bonds: We are bouncing off of trendline support at 104 and may see a further
decline to the 102 area before a major rebound. While we expect a rally in bonds
from near currenct levels, only a move through channel resistance crossing at
105 would suggest that a larger rebound is underway.
Crude Oil: We are nearing the end of the long awaited
breakouty move highlighted on February 21. A breakout move should be forthcoming
after this long consolidation period targeting $78/$80.
Note that 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.
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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