Why the dollar continues to surprise
The dollar has fared the best against its low yielding counterparts like CHF the best, while USDCAD also benefits from the selloff in oil prices. But despite some nearterm gains the overall picture remains cloudy because the chop fest continues without any clear breakout moves.
Meanwhile, our long EURGBP from 0.6780 sold off sharply to 0.6770 this morning after a run to 0.6820 overnight. This pair is ending a 2 years consolidation pattern and this kind of volatility is to be expected before a lasting trend develops. All we can say is that a move below the August lows would stop us out as that would negate what we believe to be a trend reversal in this pair.
AUDUSD is also completing a long term consolidating triangle pattern with the first
“five wave†rally move completed and the recent 5 day selloff a correction. As long as prices remain above the 0.7270 lows (where the five wave rally orriginated and we got bullish back in July) then the uptrend remains valid.
USDCAD opportunities are promising as long as support at 1.1130 holds up in the near term. If so then we could get one HELL of a rally if this market were to reverse for simply a technical bounce.
Finally, our call for a rally in USDMEX is on track. The last four days has seen a good 3% gain and we used this move to position short USDMEX last Friday at 11.05. This is our initial bet as we could still see a move to 11.10/11.20 over the coming weeks ahead of the Mexican Independence Day and the fact that Mexico’s opposition leader is threatening to create a parallel government, run from the streets of Mexico City. We hope to use this rally in USDMEX as an opportunity to position short.
*The first chart below is from seven weeks ago followed by an update. The consolidation continues but is trading above the initial downtrend line. This is very much in line with what we’d expect from a “wave 4” consolidation and “wave 5” breakout type move.
The dollar index remains in the doldrums. We look to use a sharp selloff to buy the dips via USDCHF. Only a sustained move through 86.00 would suggest a larger rebound was underway.
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.