US Dollar and Euro Outlook

At the beginning of the year, the US dollar was the most despised asset of the investment universe. Headlines like the ones below were common:

  • Why it may be downhill from here for the US dollar – MarketWatch
  • USD poised for a bear market – FXStreet
  • U.S. dollar bear market: 3 reasons it can continue – SeekingAlpha

Contrary to the prevailing opinion, the Profit Radar Report was looking for a major US dollar bottom and a major euro top (the US dollar and euro move in opposite directions).

The February 15 Profit Radar Report published the chart below and stated: “Regardless of the when and where exactly the EUR/USD tops, the next major move is expected to be to the down side.”

The chart highlights technical resistance for the EUR/USD and a very bearish posture by commercial hedgers (smart money).

The EUR/USD (or euro) topped the next day, but wasn’t in a hurry to move lower.

The March 24 Profit Radar Report stated that: “Back in February cycles were not yet bullish, but that’s about to change. Smart money hedgers remain near record bullish. Although it is possible for the USD to carve out one more low (blue labels), its not required. We are looking for a significant USD rally and EUR/USD decline in 2018.

The charts below (published in the March 24 Profit Radar Report) shows a detailed US dollar Elliott Wave projection and long-term EUR/USD projection.

In addition to sentiment and Elliott Wave Theory, basic technicals showed bullish divergences at the February US dollar low, and up trend confirmation throughout the rally since.

What’s Next?

Over the coming 1 – 3 months the pace of this advance is likely to slow as the dollar carves out a small wave 4 correction and wave 5 rally, which should be followed by a larger wave 2 decline.

Once this sequence is complete, the dollar will probably rally strongly for many months, causing havoc on assets (particularly foreign US dollar denominated bonds) around the globe.

This will be a major theme and trend in the months/years to come. We do not want to miss the upcoming opportunities caused by the ripple effect of a rising dollar. As always, opportunity for some will mean risk for others.

Continued updates, along with trade recommendations, will be available via the Profit Radar Report.

ETFs that benefit from a rising dollar and falling euro include:

  • PowerShares DB US Dollar Bullish ETF (UUP) – Dollar ETF
  • ProShares UltraShort Euro ETF (EUO)
  • or short the PowerShares Euro ETF (FXE)

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

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Dollar, Euro, Gold Update

Dollar Update

The January 2 Profit Radar Report published this chart and long-term US Dollar Index forecast:

The US Dollar Index could be at or near the end of a 5 ½ year rally. As per Elliott Wave Theory, it is possible to count 5 waves up from the May 2011 low. There are bearish divergences at the December highs, and investor sentiment is in favor of a lower dollar. We are alert for a potential multi-month US dollar decline.”

As it turns out, the US Dollar Index actually peaked on January 3, and spent the next 8 months falling lower.

In August/September we were expecting a bottom, but at the time we were not sure how big of a bounce to expect.

In November it became clear that the rally from the September 8 low to the October 27 high was only 3 waves, a first indication that the dollar bounce was over (a 5-wave move higher would have marked a trend change according to Elliott Wave Theory).

The chart below reflects the most likely Elliott Wave Theory count, which projects a more significant low in early 2018.

Smart money dollar hedgers are near record long the dollar, which could lead to a more sustainable rally even before the dollar reaches new lows (a solid close above 95 prior to a new low would suggest that the wave 5 low is already in).

However, hedgers are often early and may become even more bullish in the coming weeks. The lower the dollar falls, the better the buy signal.

Corresponding long dollar ETF: PowerShares DB US Dollar Bullish Fund (UUP)

EUR/USD (Euro)

The euro (EUR/USD) generally moves in the opposite direction of the dollar.

Since the above dollar analysis provides a multi-month forecast, we’ll use the EUR/USD for a short-term outlook.

On November 14, the EUR/USD broke above the black trend channel, and re-tested that channel on November 21 (blue circle).

The November 20 Profit Radar Report said that: “The EUR/USD is near support around 1.17. This could serve as springboard for new recovery highs.”

We now expect a rally above 1.21. The gray trend channel provides some short-term support/resistance levels. Trade should not drop below 1.17.

RSI appears unlikely to confirm new highs above 1.21, which would harmonize nicely with our expectation of a larger pullback.

Smart money euro hedgers, however, are nearly record short the euro, which will draw the euro down eventually. We’d love an opportunity to short the euro above 1.21 against a bearish RSI divergence.

Corresponding inverse euro ETF: ProShares UltraShort Euro (EUO)

Corresponding euro ETF: CurrencyShares Euro Trust (FXE)

Gold

This September 28 article included a detailed long-term outlook for gold.

The October 4 Profit Radar Report said all there was to know about gold for the weeks to come: “Support for gold is at 1,245 – 1,260. Resistance is at 1,298 – 1,304. For now, gold is likely to trade between support and resistance.”

Gold is pushing the upper boundary of the outlined trading range, but thus far there’s been no breakout. Silver failed to confirm gold’s push higher, which can be a warning signal. On balance volume has been increasing, which is a positive. Nevertheless, we would view a break above 1,307 with suspicion.

Corresponding gold ETFs:
SPDR Gold Trust (GLD)
iShares Gold Trust (IAU)

Corresponding inverse gold ETFs:
ProShares UltraShort Gold (GLL)

Continued forecasts for the US Dollar, EUR/USD, gold and silver are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

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US Dollar: How Big is the Risk of a Triple Top?

For the third time in 2016, the US Dollar and US Dollar Index Futures are above 100, and the PowerShares DB Bullish US Dollar ETF (UUP) is near 26.

How big is the risk of a triple top?

The latest US Dollar rally is in harmony with the US Dollar projection (chart below) and US Dollar forecast published in the May 15, 2016 Profit Radar Report:

Based on Elliott Wave Theory, the strong rally from May 2014 – March 2015 looks like a wave 3. The trading range since then looks like a wave 4. Upon completion of wave 4, we anticipate a wave 5 rally to new highs. The rally to new highs may well be more choppy (at least initially) than projected.”

The US Dollar has now come within tics of new recovery highs.

There are various resistance levels at 100 – 101 along with a longer-term RSI divergence. Short-term, RSI confirmed the recent price high.

In terms of seasonality, late November/December is one of the most bearish times of the year.

As illustrated by the original projection, this rally is a fifth wave. This means that the end of this rally will be followed by a sizeable correction.

Although the US Dollar may have further up side, risk is rising.

Continuous updates for the US Dollar, EUR/USD, stocks, gold, silver and other asset classes or sectors is available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

How to Spot High Probability Setups

High probability setups are like gold nuggets: rare and precious.

What is a high probability setup?

A high probability setup is a buy (or sell) signal with a high probability of being profitable.

What makes it high probability?

Investing (or trading) is all about putting the odds in your favor. The stronger the signal, the better the odds.

The strongest signal is when all of the following indicators point in the same direction:

  • Supply and demand data (only available for stocks)
  • Technical analysis
  • Sentiment
  • Seasonality

Here is one recent example of a high probability setup.

I shared the following via the March 25 Profit Radar Report:

The more research I do, the more attractive owning the Aussie dollar becomes. Seasonality is turning very bullish in April, cycles are up, sentiment is extreme, the latest low came with a bullish RSI divergence, and it broke above red trend line resistance.

There is no guarantee, but this is as close to a high probability trade as we’ve seen in quite a while. We want to own the Aussie dollar. Unfortunately currencies aren’t big movers, so the up side isn’t huge.”

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One way to gain exposure to the Australian dollar is via the CurrencyShares Australian Dollar ETF (NYSEArca: FXA).

Sentiment

The first chart offers a long-term look at the Australian dollar and investor sentiment (commercial traders’ net futures position).

As the dashed green lines highlight, every time commercials’ net exposure soared, the Australian dollar started to rally.

Sentiment: Bullish

Seasonality

Seasonality projected a strong March – May rally. The Australian dollar seasonality chart is based on Australian dollar futures prices from 1988 – 2014.

The daily performance of each year is weighted equally and averaged to attain seasonality, which reflects the average performance of the Aussie dollar based on 26 years of price history.

Seasonality: Bullish

Technical Analysis

On March 23 (green dot) the Aussie dollar broke above trend line resistance. There was also a bullish RSI divergence at every low in March or April.

Technical analysis: Bullish

Benefit of High Probability Setups

The Australian dollar did not rally immediately after the March 25 buy signal. In fact, it dropped at first.

However, since seasonality and sentiment suggested higher prices, we stuck to our guns and held on.

High probability setups deserve a ‘longer leash,’ because more often than not, trade moves in the expected direction.

The Aussie dollar is up more than 3% since the buy signal, but has now reached long-term resistance and may pull back. RSI confirmed the latest high, so any pullback should be temporary.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

Did the U.S. Dollar Put in a Permanent Low?

Last week saw the wildest U.S. dollar and euro currency swings in quite a while. The U.S. dollar index fell to new lows, the euro spiked to new highs. Both reversed violently thereafter. Is this the beginning of a trend change?

For well over six months the U.S. dollar, euro, and EUR/USD have been trading in a frustratingly tight range, but last week saw some noteworthy action.

On May 8, the U.S. dollar index traded below 18-month support (blue circle) at 79.

Based solely on technicals, the May 8 dip should have led to more selling.

However, the May 7 Profit Radar Report, which recommended a small long U.S. dollar position earlier, outlined why a dip below 79 might be a bear trap:

The U.S. dollar is teetering just above important support at 79. Based solely on technicals, a drop below 79 would be a sell signal and unlock a target around 76. However, a drop below 79 could also turn into a bear trap. Here’s why:

There is generally an inverse relationship between the dollar and U.S. stocks. Although this relationship comes and goes, the seasonal pressure on stocks should be positive for the dollar (more details on stock seasonality below).

Euro cycles will soon turn temporarily bearish.

Euro is close to up side target at 1.40.”

No doubt the quick headfake below 79 triggered an avalanche of stop orders, which fueled the vigorous rally since. The corresponding U.S. dollar ETF is the PowerShares DB US Dollar Bullish ETF (NYSEArca: UUP).

As mentioned in the May 7 Profit Radar Report, one of the reasons the dollar down side was limited, is because the EUR/USD was close to our up side target at 1.40.

The chart below shows EUR/USD (CCY: EUR/USD) resistance around 1.40 and a violent reversal from the 1.3992 high. The most closely correlated euro ETF is the CurrencyShares Euro Trust (NYSEArca: FXE).

Last week’s reversals may well be the beginning of a new trend, but it will take a move above short-term resistance to unlock new targets.

The May 7 Profit Radar Report also mentioned seasonal pressure for stocks. Everyone knows about the chewed-out ‘sell in May and go away’ adage.

Here is why to expect seasonal weakness for stocks, but first we’ll have to wait for all the ‘early adopters of the sell in May strategy’ to get burned. More info here:

S&P 500: 3 Reasons to Expect the May Blues … But Not Yet

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.