Traders bid up the Dollar ahead of this week’s FOMC meeting
The dollar recovered its losses from
Monday as traders bid it up ahead of this week’s FOMC meeting. As we
said yesterday, on a weekly chart the euro is holding above key weekly trendline
support crossing below at 1.2520 which keeps things looking bullish for the near
term. But USDCHF is trading near two month highs and looking bullish. With just
a matter of pips holding the bull/bear line in the cross, we want to see if
EURUSD breaks below weekly trendline support at 1.2520 which would likely lead
to a test of last week’s lows.
With EURUSD being the largest component of the dollar index,
the USDX is testing weekly channel resistance again today. Key resistance is at
86.50 followed by the “wave X” low of 87.50. A move above 87.50 suggests that we
are then going to target the 92.50 highs. Key support is seen at 85.00.
** Note in the chart above how cyclical and seasonal trends have turned bullish
for the dollar once again…
Gold: No change: Gold finally overcame resistance at $580 last
week which could see a quick spike to the $600 level. But only a move above
there would suggest further gains.
Recall that we held to our conviction that the parabolic advance from $560 was
unwarranted and that a pullback to the $580/60 area would be “clearly attractive
to traders.” Traders should be long from this well established support level
with stops placed just below last week’s lows. Profit targets are at $600 and
$620. Traders should use trailing stops as there is a chance of renewed weakness
targeting $540.
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 are hovering above the key 1,245/50
area which is our line in the sand for bulls and bears alike. Only a sustained
move below here keeps us bearish. Resistance is now seen at the 1,290 area.
Traders who are short from the 1,300’s should have moved stops down to 1,250 as
we recommended last Wednesday. We would look to reenter shorts around the 1290
area or on a further slide beneath the 1245 level.
Go short with risk above 1,315. Add to position on a move
below 1245.
Bonds: Our bearish forecast is right on target. We could now see a further
decline to the 102/100 area before a major rebound.
Crude Oil: A breakout move should be forthcoming after this
long consolidation period.
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.
***** The quick spike in NatGas may mean the final “wave 5” move is in. 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.