Why I’m Taking Stabs At The Dollar…On The Long Side

  • August 11, 2005
  • Jes Black


FX: Our scalping measures have
seen minimal gains over the past two days as the euro’s failure to fall below
its daily uptrend line at 1.2340 yesterday served as a basing ground for the
next run higher. As we said yesterday, “We need to see a decline below 1.2340 in
EUR/USD to get a decent correction because until then the trend remains up.” As
such, we scalped some profits on our long USD/CHF position when the euro reached
this level, then moved stops up to our entry level of 1.2558 only to be stopped
out again for a wash.

 

This has
not frustrated us in the least. As readers will recall, last week’s failure to
hold above the key 88.30 level persuaded us to call for a decline to the 87.00
level. We did not initiate a position simply because your editor had the
first 10 days of August booked for golf. Since returning we have taken stabs at
the long side as we know that the 87 level is not only the 38.2% Fibonacci
retracement but also channel support from the March lows at 81.15.

 

Considering
the “oversold” status of the dollar and that the Fed continues to raise rates,
the dollar should find some buyers here for a bounce to 89 at the least. As
such, we will look to position long tomorrow AFTER the trade deficit figures IF
it causes a typical spike down on the “news” to this confluence of support
followed by a reversal above the steep downtrend line from the July 26 highs.

 

 

 

 


Stocks:  Yesterday we said,
“The typical  post-Fed reaction is for stocks to rally the the day of the hike
and the following day but then selloff the next.” Yesterday afternoon’s selloff
qualifies for this. As such, we continue to feel the stock market topped last
week and traders have a good risk/reward setup to get short the rallies with
risk limited to just above the 1245 highs. Meanwhile, we are quite content with
our call to go long the VIX last month at 10.50.

 


Bonds: No change: Bond yields rose
above 4.4% but only a move above 4.6% in the 10-year yield would indicate bonds
are headed lower. Meanwhile the 5-year note is getting pounded by the
speculators and remains the best bond short out there as the market prices in
more Fed hikes to come this year and the next.

 

Regards,

 

Jes Black

 

FX Money
Trends

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