This week we start off with a holiday here in the States. As usual the lack of volume will cause volatility to be more extreme than normal. Global stock markets continue to fall as they begin to realize that the problems here in the US will not be fixed anytime soon. This is also causing the carry trade to be unwound and that continues to push the pairs against the Yen lower. We are expecting this slide to bounce this week. We do not expect it to be an all out turn around but rather just a dead cat bounce. Bottom line continues to be to buy Dollars even in the face of impending rate cuts at the end of the month.
Eur:
The Euro continues to slide and we continue to sell rallies and target a move to 1.43 and possibly all the way too 1.38. The early part of this week may see a brief rally and if we do we advocate selling into it and covering again by weeks end.
GBP:
The cable is the one exception to the buy dollar rule that we currently have. This pair is likely to see a retest of the 2.00 level by Valentines day. We are therefore buying dips like we are seeing this morning.
JPY:
As I mentioned this pair is suffering due to the carry trade being exited. We need to see the US stock markets stabilize before this pair can turn back up. While every monetary official here in the US said publicly last week that they need to act now, as usual we have since then seen nothing in the way of help. (“I am from the government and I am here to help” LOL). Bottom line is that we continue to buy small long positions in this pair betting on a bounce to 110.
CHF:
The Swissy has been held in a very tight range. It is fighting two opposing forces. The first is the carry trade, which the Swissy is related to and the second is the falling Euro which it is obviously related to. Since those two forces are moving in opposite directions it is keeping this pair frozen. Bottom line though is that the forces of the Euro will outweigh the carry trade so we are buyers of dips rather than sellers of rallies.
Aussi:
This pair is has seen a sharp correction since testing the 90 level. We are now buyers below .8650 targeting another test of the 90 level in February. We are doing it with low leverage as a larger pullback in commodities could hold this pair back from any major rallies in the near term.
Cad:
This pair has also been stuck in a range but for different reasons than the Swissy. We continue to sell rallies and are now short from 1.0301, with a target of parity. This pair is another where we would prefer to be short dollars but that is really more a statement about wanting to long the Cad rather than short dollars. The Eur/cad short would be an even more pure short play for those who do not mind the wild volatility that is inherent in that cross.
Energy:
This week we expect to see Crude find and hold support above the $85 level. We are buyers below 90 targeting a retest of the mid to high 90’s later this quarter. Natural gas is also a buy on pullbacks.
Stocks:
This week is critical for the stock market. Last week we saw a parade of monetary officials saying that the time to act to stop the free fall is now. Since then no one has acted. The markets will now test the resolve of these talking heads and see if they are willing to put our money where there mouth is. We do expect to see the markets stabilize this week though we are less than enthusiastic buyers or sellers at the current time.
Metals:
Gold and Silver continue to pullback against a rising Dollar. Near term we see this countertrend to continue. Make no mistake about it, this is a pullback that you want to buy. It is not a question of if gold will trade above $1,000 but only when. We expect gold to test support at 850 before this countertrend turns back up. Keep leverage low as ATR is huge. Silver is likely to retest support at 15.00, this too is a dip that should be bought as longer term we see Silver testing at least $20. Copper has formed a classic bear flag on the daily charts and we are sellers over 330.
Grains:
Grains have seen wild volatility in the past few weeks. We see this as evidence that we are close to a near term top. Seasonal tendencies for grains, is to sell off into early spring. That being said, this past year has been anything but the norm. ATR (Average True Range) is much greater than usual here too so keep leverage lower than normal. Do not jump in front of one of these run away trains, if you are going to go short wait for the turn to show itself clearly rather than anticipate it. Corn & Wheat are likely to be better shorts than the bean complex.
Softs:
OJ is drifting sideways and is likely to continue directionless trade for the next few weeks. Cocoa has been unable to hang onto gains over 2200. Near term we expect to see 2000 tested again before another leg up. Coffee is quietly trending higher. We see this market as unable to break out above 145 in the near term so we are now looking to exit longs and put on shorts in the high 130’s. Sugar is undergoing a blow off top in the near term so we are buying puts during these rallies. Cotton is also seeing some boiling action indicative of a near term top. We are long term bulls of cotton but near term we are looking to buy a pullback not chase it higher.
