Why the Dollar could begin to recover here
FX: The dollar shot higher today on the
back of comments from the PM of France saying they would do what they can to
keep the euro from appreciating more.
On Monday, the dollar rallied in clear “five wave” fashion
from last week’s lows and fell in “three wave” fashion to overnight lows before
rallying again and breaking through key downtrend resistance. Yesterday we said,
“Key support for the euro is at 1.2780 and a break below there would likely test
the 1.2680 support/resistance mark from earlier this month.” The move below here
is now targeting 1.2680 where we expect traders who are short to take some
profits.
If 1.2680 were to give way we think the reason would be from
dollar short covering. Recall that the near record bearishness seen last week
coincided with the bottoming of both cyclical and seasonal trends. So a move
below 1.2680 would likely then target 1.26/1.2550.
** Note that on Moday we said, “Traders can look to buy USDCHF today at 1.2070
with stops at 1.1970 looking for an initial relief rally back to 1.23/1.24 over
the next week.” Those who are long from 1.2070 should move stops up to cost.
Gold: No change: Gold fell in “five wave” form from the $730
highs and is now bouncing higher. We feel that a major top is definately in
(after Crying Wolf for the past two months about the coming top).
But the sudden collapse from the parabolic curve this week after a blowoff top
through the key $700 figure while silver again failed to bust through key
resistance at $15 is encouraging to our outlook that this was a final “wave 5 of
V” move.
As we said last week, “The exponential rise is typical for a “fifth wave” in
commodity prices. A top here will mark the end of “wave 1 of V” meaning a
pullback to $600/540 would be “wave 2 of V” followed by an explosive rally in
“wave 3 of V” to new all time highs.”
Stocks: The selloff gathered steam this week after breaking
below the uptrend line from last October. Sell in May and go away may be the
theme for this summer. Recall that the conventional wisdom is that the market
will take off when the Fed takes a pause. But history shows otherwise as peaks
in the rate cycle are coincident with stock market tops. We will turn outright
bearish on a move below 1175 targeting 1145.
Go short with risk above 1,315. Add to position on a move
below 1245.
Bonds: Bonds fell again as rates rose and are starting the bounce. But we still
hold to the view that traders could look to book some profits at at 104/105 from
the 109 short call we made two months ago.
As we said before, this bounce should not be that strong. Recall that in this
weekend’s report we showed how global bond markets are pointed significantly
lower. Therefore, we might rally back to 107 in the coming weeks before heading
lower again.
Crude Oil: No change: 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.
***** No change: NatGas appears to be in the final “wave 5” move we first
counted out for you in February. However, the initial rally we were expecting
was only “wave 4” which means the puking of weak longs appears to be what
transpired this past month.
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 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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