This Pair Is The ‘Weakest Link’ For Now
The strength of the dollar’s underlying trend
is truly evident. In the chart below we show the 87 handle marked
in blue. During this entire June – July seasonal weakness period for the dollar
we called for a move back to the 87 level before a final rally in “Wave V” to
the 92 handle in August. Each pullback has resulted in a tight triangle
formation which is the most common type of “wave 4” move. Therefore, with
seasonal weakness in the dollar now giving way to the final burst of energy from
late July to mid-August, a “wave V” launch looks like the most likely
occurrence.
Last week we got
frustrated enough with the choppy action to do a guerilla trading “hit and
run” with the euro, buying a large amount at 1.2105 and selling at 1.2185. We
still held onto a long from 1.2190 with stops at 1.1945 and we look to get out
of this today if possible around 1.21. If this is taken out today at 1.1945 we
may just sit out the ride down to 1.17 and look to buy there which was our
longstanding intention since we called for a move down to 1.1700/2000 in
January.
Meanwhile, the CAD is
getting its commeuppance for the difficulty it caused us earlier this month. Two
weeks ago we said to buy at the 1.47 level in EUR/CAD. Prices today are above
1.49 and we may look to add to this position (note that we always start small
and leverage into winning trades). USD/CAD also (amazingly we add) rallied above
key resistance at 1.2280 yesterday giving it a full “thumbs up” from most every
analyst we spoke with. CAD should be the “weakest link” for the next few weeks.
Finally, USD/JPY also
looks like it will rally to our target of 114 without us (we closed at 112.60
from 106.80). The wave structure suggests a final “wave V” move up to here
regardless of what the Chinese do or say. It only goes to prove (to us anyway)
that you can only use the news to an extent. As such we did not try to short the
rally back to 112 as we suggested we might in last weekend’s report, because the
unfolding action looks bullish.
The dollar (though we
still think a two-day pullback is in order) should now be headed higher in the
final “wave V” move of the year to 92.
Regards,
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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Jes
Black’s opinions are often featured in the Wall Street Journal, Barron’s,
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.