FX: This is
our first public posting of the New Year. As such, we need to give a recap of
our trading strategy.
Most of you know that we had closed out our long
USD/CHF initiated on January 3, 2005 at 1.1430 at 1.3140 on December 27, 2005,
effectively riding out our well forecasted rally for the dollar in 2005.
Readers may also recall that we were geared up
for a bullish month of January in the US Dollar as that has historically been
the strongest month on a seasonal basis for the past 30 years. But we had also
issued a report in the last week of December saying to watch the 1.1970 level in
EUR/USD because our colleague John Netto had issued a major buy signal on out of
the money euro calls.
So when the US Dollar fell like a stone on
January 3, 2006 we immediately revised our near term outlook, and purchased long
AUD/USD at 0.7350. Two weeks later we reinitiated long USD/CHF positions at
1.2720 for an expected bounce to 1.2900/50. We said traders should play that
bounce and then expect one final plunge.
After the forecasted bounce in USDX towards 90.00
ushered in new weakness we said in this weekend's report that "key support at
88.00 offers traders the best opportunity to position long if (and only if) the
88.00 (cash) level holds up." However, we also noted yesterday that "EUR/USD and
USD/CHF fell shy of their expected targets yesterday so marginal weakness in
USDX could be tolerated in the coming days before a major bottom is reached."
EUR/USD did see a marginal new high, but USD/CHF
did not see similar new lows. Meanwhile, USD/JPY is up strongly and we added to
our long position today at 115.60. AUD/USD is holding its ground near last
week's highs and our short USD/MEX position is still doing well.
We still look to buy more USD/CHF at 1.25 but we
also know that failure to hold this level would mean that the US Dollar is
looking to retest the September lows before a major rally. Either way, we are
doing fine with our core positions initiated on January 3.
To clarify, we list below our trades with some
updated comments:
Jan 3: Short USD/MEX @ 10.63 -- Looking to add at
higher levels possibly.
Jan 3: Long AUD/USD @ 07350 -- Bought more on the dip to 0.7450.
Jan 6: Long USD/CHF @ 1.2720 -- Looking to add at 1.25.
Jan 9: Long USD/CAD @ 1.1660 -- Trying to hold the 1.15 lows.
Jan 12: Long USD/JPY @ 113.70 -- Want to close out at 116.30/40. This pair is
still holding up.
Gold: No
change: Gold continues to show its strength. The theoretical price is somewhere
north of $800, but we see a completed "five wave" move at $564 that needs a
retracement before the next strong "wave III" move takes off. It will take a
move below $542 to suggest a larger retracement at hand.
Stocks: No
change: The S&P 500 threw itself over trendline resistance at 1285 last week and
sunk in a sharp reversal. We said the January rally appeared to be the finishing
touches on a two-year long ending diagonal pattern. But, "For the bears to steal
the ball we need to see a top in the S&P500 around current levels and a 'five
wave' move down below 1275 and then key support at 1245. Once accomplished, we'd
expect more selling pressure to follow." So far the reversal is going strong and
we think traders can look to go short with risk limited to 1,300. We are still
waiting for a completed "five wave" move lower to confirm a top.
Go short with risk above 1,300.
Bonds: We
have said for two weeks that "The corrective move in yields looks finished.
Yields should head higher (bonds lower) over the coming weeks. But the 10-year
note will have to move below 109 to get the downside rolling. Only a move above
110 negates this scenario." Yields are trying to move higher and notes are
testing the key 109 area this morning.
No trading position at this time. Still looking
to sell on a confirmed move below 109.
Crude Oil: No
change: Oil is back in the news as prices are rising again. We said many months
ago to expect a correction back to $55 followed by a renewed rally to $80-$100.
From Friday's WSJ an astute market observer noted, "The speculators have been
negative on the market until recently, so there's more than enough room for them
to come back into the market and push prices higher." We tend to agree.
We recommended long at $55 but have no trading
position as we do not play the energy markets directly.
Jes Black
FX Money Trends
613 4th St Suite 505
Hoboken, NJ 07030
Tel: 646.229.5401
www.fxmoneytrends.com
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.
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.
