Play-on-quote du jour

L’État, c’est moi! – Louis XIV

Le Dow, c’est moi! – Bernanke

Potential reversal pattern on the ES

A high-reward potential scenario for the next hours/days.

May 13th Addendum: This pattern has failed

Play-on-quote du jour

 

L’amour physique est sans issue. – Serge Gainsbourg

L’amour cybernétique l’est encore plus. – Anthony Weiner

CAD: Know thy levels…

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Play-on-quote du jour

“Everybody has a plan until they get punched in the face.”
— Mike Tyson

“Everybody has a plan, that’s why I don’t make any.”
— The Market

Season’s GR€€D-ings ahead?

It’s this time of the year again when fund managers are under pressure to meet their year-end targets. 2010 will be morose? Perhaps but in the meantime, it’s still 2009 and I do not think worries about next year will stop this market from moving higher. The über-dollar liquidity provided by the Fed must find its way somewhere. Seasonality is definitely on our side as well. The following S&P500 historical chart clearly shows how bullish the last 6 weeks of a year usually are.

As everyone who has been trading the market this year knows, the dollar index is highly inversely correlated with the stock market. A rising market should then take the dollar down further. Here again, seasonality is on our side The following chart shows that we are entering a very weak period for the greenback.

Based on Fed policy, seasonality and market correlation, I think it is an excellent risk/reward to be positioned short dollar. Since the Euro makes about 57% of the dollar index, it would seem natural to expect the EUR/USD to gain some ground in the next weeks. The following charts identify a potential target for the pair. Note that I am not particularly bullish on the Euro itself. This would mainly be a play on dollar weakness. Nevertheless the identified target area (1.52-1.54) is a good price magnet since it is the next key level if we break above 1.50.

EUR/USD chart here

Oil isn’t historically bullish at the end of the year but Fed liquidity could inflate its value just like it has inflated gold in the last few weeks. Looking at oil from a technical perspective, we can see a bullish flag formation which, provided a scenario of inflating assets, could take us well into the $90s before year end.

As Forex traders know, a bullish US stock market combined with rising commodity prices are very favorable conditions for the Canadian dollar. The only caveat here would be disappointing Canadian economic figures. A look at the USD/CAD chart shows an interesting target for year-end right about the current low of the year at 1.02

Remember that currencies tend to over/under extend their PPP by about 20%. From a fundamental perspective, the Euro is already above its PPP which according to the IMF is about 1.25 if I remember correctly. The Canadian dollar is probably less over-valued. The important thing here is that timing is everything. I am of the opinion that the Euro will weaken as soon as the Fed starts signaling the end of its extra-loose policy. In the meantime, I am playing the dollar on the downside. 2010 is sooo next year.

Note: This post was written on Monday, November 23rd.

Three interesting dollar shorts

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