USD/CAD correction time?

Update: 27 April 2017/3:00 p.m. ET

USD/CAD 4-hour View [last 1.3619]:  We may have seen a five wave impulse rally completion at 1.3647, labeled wave [5].  If so, there is at least a short-term setup for move down to 1.3400-level in minor wave [c].  And if oil rebounds here (as we have been expecting a move back to 51-level in WTI futures June), $-CAD could break-down sharply.  Daily swing support levels:  1.3480/1.3260/1.3220

Comment

Currency ETF View & Comments

Ø  Dollar index (UUP) -- Still a very difficult call, but we remain cautiously bullish.  Drivers will be US growth coming in; the Trump Agenda; haven attraction; and relative yield.  At this stage most of those factors are favoring the US dollar.  But open to the idea relative Eurozone growth is improving and sentiment improved on the back of French elections.

Ø  Japanese yen (FXY) – Looks as if a major low may be in place.  The rationale for this view is ongoing and unlimited loose monetary policy from Japan and no considered rejection of that policy from the recent IMF meeting under the guise of currency management.  If the North Korea problem can be adequately addressed, and tensions ratcheted down a notch or two, a big relief decline in the yen could follow. 

Ø  Euro (FXE) – Acting very well on the French election results which despite the lack of a major party in play, Mr. Macron is very much an establishment (EU) candidate.  His big lead is adding confidence among the intelligentsia (so decent institutional funds flow to Europe seems to be helping the euro).  But, anything can happen here.  The fundamental rationale is the Eurozone economy is recovering and Germany has signaled it can handle a higher euro.  The wildcard is the ECB—will it start validating the building growth sentiment? 

Ø  British pound (FXB) – Still acting well.  But politics continue to loom and there are some serious concerns about the UK consumer going forward—it could hammer growth.  This may not matter if PM May proves successful in the upcoming snap election.  Technically, looking for one more push higher as an opportunity to add puts here.

Ø  Canadian dollar (FXC) – Two fold hit here: 1) the tight correlation with oil prices continues to smother the currency; and 2) the tariffs on Canadian wood exports to the US announced last night by the Trump administration.  Expecting the weakness to continue here over a multi-week time frame, maybe more given our bearish outlook on oil (and of course assuming the current correlation remains intact).

Ø  Australian dollar (FXA) – Looking for a big push lower here and an opportunity to add puts as the yield spread between Aussie and the US continues to move against Aussie (note the divergence on the chart page 6).  Despite what seems to be stabilization in China, Aussie still acting badly—qualitative weakness.

Read more and view charts...

Comment

Shorting Euro today…cautiously…

Please click here to view the PDF version

Quotable

“Come what may, all bad fortune is to be conquered by endurance.”

--Virgil

Commentary & Analysis

Shorting Euro today…cautiously…

Clarity in the currency markets of late has been cloudy at best.  The competing rationales continue to be: 1) End of the Trump reflation trade and therefore the US dollar has peaked: or 2) It wasn’t necessarily the reflation trade (which still may be on but delayed) but the rising US yield differential supporting the dollar on the back of three Fed hikes in 2017 which was the driver anyway. 

Some news from today and yesterday gave us a bit more confidence in our Wave chart setup….

This headline story from Reuters, coupled with some data that suggest a decline in US growth momentum supports the dollar bearish view (or the euro bullish view):

  • WASHINGTON, April 20 (Reuters) - Dallas Federal Reserve President Robert Kaplan said on Thursday that three interest rate hikes this year remains possible but that the U.S. central bank has the flexibility to wait and see how the economy unfolds. "The median for three rate increases this year...is still a good baseline. If the economy develops a little more slowly, then we can do less than that and if the economy is a little stronger, we can do more than that," he said in an interview with Bloomberg TV.

Yesterday’s inflation data out of the Eurozone likely plays into ECB rate expectations:

…so we went short a ½ position EUR/USD on this setup this morning, as we had an extension target of 1.0776, which it hit right on the button today.  The target, technically, based on an extension of Wave C equaling 1.618 x Wave A and also a key retracement, 61.8% of Wave [1] down, coming in at the same level…1.0776…it seems to be holding now and looks as if this is a good risk/reward short:

You never know; but so far so good… 

You can sign up for a free trial of our services at our home page www.blackswantrading.com

Thank you.

Jack Crooks

President, Black Swan Capital

jcrooks@blackswantrading.com

www.blackswantrading.com

772-349-6883/ Twitter: bswancap

Comment

Are Comdols in the cross-hair if oil prices see $35?

Please click here to view the PDF

Quotable

“Soon you will be where your own eyes will see the source and cause and give you their own answer to the mystery.”

― Dante Alighieri, Inferno

Commentary & Analysis

Are Comdols in the cross-hair if oil prices see $35?

Based solely on our wave analysis, the short answer is yes.  And near-term, the price action today in iron ore, copper, and gold isn’t helping commodity currencies (even though the rest of the majors are doing well against the dollar).

It seems the most accurate correlation for the commodity currencies remains oil prices.  We are expecting oil to see $35 before it goes higher; that is likely not good for commodity currencies.  Of course the big assumption here, or elephant in the room, is the US dollar.  If our oil guess proves true, it means the US dollar is ramping up again.  And a stronger dollar pressures commodities across the board.

Crude Oil Futures (WTI): Targeting down to $35 per barrel and wondering how this might not only hurt commodity currencies, but emerging market currencies and add to worries about the House of Saud. 

Read more...

Black Swan Capital 

www.blackswantrading.com 

Comment

Updated view GBP/USD, USD/CAD & EUR/USD...post Trump dollar rant...

President Trump's rant about the dollar being too strong, thanks to confidence in him (never missing an opportunity to brag), led to a sharp fall in the dollar on Wednesday afternoon.  Of course President Trump, who seems to be enjoying the flip-flop game immensely now that he is in power, may want to consider he can't have his cake and eat it to.  I.E. he wants his reflationary agenda to succeed, but it is precisely that success which will likely determine the path of the dollar.  

Anyway, the dollar snapped back a bit today...we suspect this will continue...here were the updated wave charts and comments shared with our subscribers today.........

GBP/USD 4-hour View [last 1.2523]: Wave 2 corrective rally complete?
14 April 2017/7:56 a.m. ET

A better fit for this pair is an A-B-C corrective Wave 2 into yesterday afternoon's President Trump driven rally.  If this pattern analysis is correct, we should expect sharp acceleration lower from here.  Seems a very good risk/reward setup, with momentum turning down near-term.  

EUR/USD bear case intact for now...
13 April 2017/9:18 a.m. ET

EUR/USD Daily [last 1.0629]: A decent probability yesterday's sharp intra-day rally completed minor wave [ii].  Key support is at 1.0587 (see next chart hourly); the swing low is 1.0568...

EUR/USD Hourly:  A-B-C into wave [2] corrective high at 1.0677?  We need a break below minor wave B at 1.0587 to add validity to the bear case...

USD/CAD bullish view still intact...not below 1.3032
13 April 2017/9:55 a.m. ET

USD/CAD 4-hour [last 1.3244]: The sharp bull-back in the pair yesterday is still within the range of a wave 4 correction and the move down from wave [b] high looks impulsive (5-minor waves to create [c]).  Critical support, that which changes the view, comes in at 1.3032.  Momentum is turning higher near-term...

www.blackswantrading.com 

Comment

How was Orwell at currency forecasting?

The establishment loves war? Does the dollar?  First thought is safe haven flows benefit the dollar, as War creates risk.  But same token wars drain the Treasury, not a good thing one would think.  But draining the Treasury lubricates the global economy—that’s good for globalists’ investments; but not good as it relates to the US current account deficit (Triffin’s Revenge).  Though one can’t trade off current account data per se, it seems the current account has coincided nicely with longer term dollar direction of late.   But maybe the Trump agenda just got a nice little boost from those Tomahawk missiles shared with Mr. Assad.  Tax and regulatory reform sooner than later would likely be good for the dollar. ...read more

Thank you.

Jack Crooks

President, Black Swan Capital

jcrooks@blackswantrading.com

www.blackswantrading.com

772-349-6883/ Twitter: bswancap

Comment

US Dollar Paths and Summary Rationales

Click here to view the PDF version

Quotable

“The reason that the US will continue to be the world’s decisive actor is the abiding centrality of the US dollar, a centrality that was established by the outcome of World War II and has remained continuously intact for 70 years to date.”

                            Citron Zoakos

Commentary & Analysis

US Dollar Paths and Summary Rationales

A quick summary of intermediate- to long-term drivers of currencies:

As we know, growth and interest rates are inter-related and must be evaluated accordingly at different stages of the business cycle.  But as the interest rate relates to currency values the best ongoing correlation is the direction of the yield spread, i.e. a higher yield spread tends to support a currency, and vice versa.  Often the Japanese yen represents the exception to this rule because of the yen’s tendency to rally on risk given local money flow back into JGB’s.

So it’s the yield spread we watch (not interest rates themselves).  In other words we watch how interest rates are doing relative to other currency competitors, i.e. relative yield.  All things currency trading are relative. 

The other key variable is capital flow, which again is an inter-related variable with both growth and yield; and can gain an added bump from policy changes in a country.  And from a currency perspective, we try to judge capital flow in two different categories: 1) foreign direct investment, and 2) hot money flow.  Both are important.  But for the longer term, foreign direct investment is the structural stuff that stays, where as hot money sloshes around the globe seeking yield, then moving on. 

And these flows into a currency can be self-reinforcing for all kinds of reasons—price appreciation begets more flow, capital flow increase collateral values leading to more flow, etc. Thus, a currency can become ensconced in either a virtuous or vicious circle; either everyone wants in, or everyone wants out.  This is what leads to the “overshoot nature” we often see in currency values. 

Policy as you know plays a key role in both expectations of growth and yield and whether a country represents fertile ground for foreign direct investment.

Up until recently, everyone was quite excited about the Trump Pro-business policy agenda. Most assumed the regulatory changes and tax reductions would drive the US dollar higher and higher.   But the latest roadblock, or speedbump, depending on your perspective, seems to have changed the sentiment on the US dollar.  A reality bite if you will for those who believed policy change was easy; it is not. 

So here are three different scenario summaries for the future course of the dollar (granted, there are many others)… 

1) Dollar has topped:

a) The Trump Agenda will fail or be significantly diluted given the unrelenting attack from left, establishment Republicans, the deep state, and self-inflicted wounds, with the upshot being much reduced real money flow in the form of foreign direct investment and repatriation; and

b) The global economy is still mired in grip of deflation and the overhang of massive global debt will continue to thwart global growth, especially if US growth is stymied because of policy disputes. This scenario would suggest Federal Reserve Bank interest rate expectations will be scaled back; which in turn would dent the US dollar yield spread over time.  

Note: The divergence in the MACD at the bottom pane of the chart above.  Often momentum is strongest in the third wave and we see divergence in price and momentum in the fifth wave, as shown above.

2) Healthy correction only:

a) It really should be no surprise the Trump Agenda is running into turbulence; real change isn’t easy and it requires sustained focused effort and coalition building.  Despite failure on the health care bill (which may be a blessing in disguise as the Republicans can still hang the disaster of Obama Care on the necks of Democrats) there is little to suggest, yet, there won’t be progress on tax and regulatory reform--two drivers of real money flow as it relates to foreign direct investment into America. And there is plenty of time to circle back to health care.

b) The realization reform will take time may be coinciding with a belief its past time for other major central banks to consider reducing monetary accommodation; this sentiment change naturally will require a near-term re-rating for the dollar for now.  But once the Trump Agenda gets back on track, later in the year, we could see dollar bulls re-emerge in a big way and drive the US dollar to new highs in wave 5 as labeled below:

3) Dollar risk bid on euro unraveling

The third scenario is one we are all familiar with.  If the French elect Marine Le Pen, it could be lights out for the single currency regime, as Ms. Le Pen has vowed to hold a referendum on EU membership—a Frexit, if you will.  The prospect of this and ongoing concern surrounding Brexit resolution with the EU, and geo-political turmoil in the real world, may just be dollar supportive and we could see some meandering price action till late April.  And if Ms. Le Pen surprises the world, as Brexit did, the US dollar is likely to soar. There will be no deep correction, just a rocket launch into new high territory which will be very bad for emerging markets and could trigger some real turmoil in multiple regions of the globe at the same time.

All these scenarios have a degree of plausibility.   If push comes to shove, I think the first scenario makes most sense—a healthy dollar correction then another leg higher.  But the other element pushing against this scenario is the fact the US dollar has been in a bull market for nine-years, it is getting long in the tooth. So, confidence about another leg higher is moderate at best. 

Trade Copier Advertisement

*******************************************************

Black Swan Capital’s Trade Copier program is going well.  This is real money trading effectively, with clients who have forex accounts at Gallant Capital copying our performance. 

We began the program in July of 2016.  We are up 61.2% through March 31, 2017.

To view the program summary and detail performance click here

You can find information about this program on our site here

Note: You can start the program with any size account you choose.  But given the cost is the Black Swan Forex subscription, be sure you have enough starting capital for that to make sense.

*******************************************************

Also, this program is limited to non-US residents.  But there are restrictions in some major countries outside the US.  Because of that, we are also in the process of setting up a similar Trade Copier program with no country restrictions through Striker Capital, based in Chicago.  This program will trade currency futures (not spot fx).  I will share details of the program soon.

If you wish to contact me directly regarding the Trade Copier programs, you can reach me via email at jcrooks@blackswantrading.com or phone at 772-349-6883.  Thank you.

You can sign up for a free trial of our services at our home page www.blackswantrading.com

Thank you.

Jack Crooks

President, Black Swan Capital

jcrooks@blackswantrading.com

www.blackswantrading.com

772-349-6883/ Twitter: bswancap

Comment

US $ Smoked. Game over? Is the yen telling?

The US dollar is getting whacked today against the euro, yen, and pound...but in this risk-off day where stocks are getting clobbered, the dollar is holing up against the commodity currencies...but looking at the US dollar index chart weekly basis suggest if it doesn't hold 9923 support, there could be a long way to fall even if only a correction...There are decent rationales to suggest the dollar bull market is over--disappointment on the Trump agenda, global central banks playing catch-up on rates, etc.; or an expected correction until real money flow pours into the US on Trump agenda implementation and tax holiday for pools of cash held by US companies offshore...we shall see...

...but over the intermediate-term, measured in months, maybe the $-Japanese yen relationship will show the way.  A break of critical support at 111.57 in USD/JPY, tested today, suggest the yen goes lower and maybe a lot lower...alternative targets to 108.43; then 104.05 on this view...stay tuned...

To sample our services, please sign up at our home page www.blackswantrading.com...thank you. 

Comment