Dollar Haze & Daze
by The Ticker
For those of you who follow me you know I prefer to position trade versus day trade. That doesn’t mean I don’t, from time to time seek benefits from short term moves. It’s just that at the age of 65, despite more than fifty years of experience, I’d rather look for cyclical events that take months and years to unfold versus those taking fifteen to twenty minutes.
Others who know me understand that I follow the US Dollar. The reasons are simple; (1) currencies trade in a cyclic manner; (2) they are insanely liquid; and (3) several other commodities are directly influenced by moves in the Dollar.
Of late the Dollar is exhibiting weakness. But for it being a haven of safety during COVID-19 we would have hit these levels months ago. Currencies like the Dollar, especially the Euro, are mirror like reflections of each other. They both move in longer term six to seven year cycles effected by and effecting their prices is the underlying matrix of interest rates and money supply.
Recent moves in the Dollar are both rational and expected. Undoubtedly, regardless of whether Georgia ends up being “blue” or “red” whomever is in control will need to print and spend upwards of another $3.0 – $5.0 trillion to shore up the economic disaster COVID-19 inflicted in addition to a real “shovel ready” infrastructure spending plan. In addition, the only major currency with positive interest rates is the Dollar. In other words we have a little catching up to do as opposed to the ECB and the Brits.
To better exhibit my beliefs, let’s look at a few charts.
The first is a 30 minute chart where a shorter term trader may be looking for a bounce. The rectangular area depicts what I call the “low water mark” and remember water flows from higher points to lower points. Although I wanted to reflect this short term chart it is not one that I rely upon to position trade. If the Dollar goes up I’ll be shorting more.
The daily Dollar chart better illustrates the decline that started a few months ago. The appearance of a lower water mark as it approaches a lower resistance point better tells the future. Again you might get a bounce and if we do we will fade the Dollar looking for an eventual move 10% to 15% lower than its current values.
The weekly chart better confirms our belief. Not only is the low water mark below where the Dollar is currently trading the underlying resistance is at the same level as the most active point over an almost ten year period. Short term we expect the Dollar to pass through the 80s with little resistance until reaching our target in the middle to upper end of the 70s.
We’re not always right but macroeconomics are backing what you see with respect to the value of the Dollar. If Georgia goes “blue” the move might occur sooner than we think.
Mirror, mirror on the wall, is the Euro the fairest of them all? Let’s take a look at the mirror opposite of the Dollar the Euro.
Just like the Dollar only in the inverse, short term looks like it will correct. It might but my sense is that if it does it will be short lived and we’ll be buying just as we have since the 1.165 level.
The Daily chart is starting to tell my story. There’s a little resistance above its current level but it’s about the break through its highest volume trading point. The Euro moves quickly, either up or down between the 1.2450 and 1.2950 level. That’s where we believe it’s heading sooner than not. All aboard!
The weekly chart looks very similar yet the inverse of the Dollar. It’s been a while since the Euro hit levels depicted by the most active volume point. The fact that this ten year chart illustrates that this point remains the most active level is important. The Euro is going higher folks and the economically deteriorating foundation of the Dollar is going to help it get there.
To conclude I wanted to bring a lesser know commodity that we position trade into focus, coffee. Yes, the weather in Brazil and now in Viet Nam effects the price, we know which is why we buy international weather reports. Conditions are not ideal but they are not that bad, yet. In addition like Soybeans (better known as “teenie beanies”) due to the Dollar’s decline, that same decline pushes the price of coffee higher as well.
The 30 minute chart shows a low water level above where it is currently trading. Keep in mind when coffee moves it moves quickly. We were long coffee as it recovered from all time lows a while back. Those lows were never tested and in all likelihood will not be in the near term.
The daily chart illustrates a significant move is likely to expand exponentially given continued weakness in the Dollar coupled with a little bad weather. Any breakout will encounter little resistance.
That’s all for tonight folks. You can usually find me on TradeChat and it’s my pleasure to post. Danny and Marlin have supported us here at AMS so returning the favor is the least we can do. Have a comment or question send me an email at firstname.lastname@example.org. Have a happy, healthy new year.